NEW YORK — Don’t read too much into the September and October numbers.
Most retail executives anticipate they’re in for a good Christmas season, despite the tumble stores took in September and the aggressive clearances that followed.
They say there are enough positive indicators — low unemployment, record high consumer confidence levels, better fashion, and one extra shopping day this Christmas (27 compared to last year’s 26) — to cook up at least a decent holiday season.
That doesn’t mean everyone’s a true believer, however. There’s the potential warming affect of El Nino, chilly reports about consumer credit problems, and a widening gulf between the haves and have-nots, which some economists believe is apt to stimulate luxury businesses this winter and compress sales at moderate chains.
And then there’s the question of interpreting the results: Comparisons might be good, but that’s because the ’97 numbers will be up against a disappointing ’96 season, a disastrous ’95 and a lackluster ’94 season.
For the fourth quarter this year, Wall Street, economists and retailers are generally projecting comp-store sales around 3 to 4 percent ahead, with profits surging in the double digits in many cases, helped by continued cost cutting.
Indeed, Merrill Lynch, in its holiday forecast released last week, estimated that 19 major retailers would post an average 19.7 percent profit gain, and 3 to 4 percent comp-store sales gains. [See related charts].
Furthermore, there’s been price deflation for the past two years, but this year, there’s been about a 2 percent general merchandise inflation rate, raising sales dollars.
In September, Wall Street analysts took an unusually bullish stance, suggesting Christmas ’97 could be a humdinger. Then the disappointing September figures came out, and some opinions changed. The weather and Princess Diana’s death were linked to the month’s declines.
The retail business at the beginning of October remained poor, though there’s been a recent pickup with the cooler weather.
Now, with the situation getting harder to read, WWD asked dozens of retailers and analysts to sort through the muddle.
In most cases, retailers seemed confident and shrugged off the September numbers. Yet there were a handful of sharp dissenters, like Carl Steidtmann, chief economist at Management Horizons, who said flatly: “It’s going to be a poor Christmas.”
There was also one department store ceo who said it’s going to be “the most promotional Christmas ever” and when it’s all over, the numbers may be only as good as last year’s, meaning maybe a couple of points up.
At the Century City shopping mall in Los Angeles, sales are expected to continue as they have throughout the year, flat or 1 percent above last year, said Linda Smith Frost, marketing manager for the mall, which is anchored by Macy’s West and Bloomingdale’s.
“I’d love to say it’s going to be a stellar season. We see indications that it won’t be down, but that it also won’t be a boom over last year,” Frost said.
Syms Corp. expects a same-store sales increase of about 2 to 3 percent for the fourth quarter, a slight increase over 1996, according to Sy Syms, ceo.
Likewise, Macy’s West conservatively expects comparable-store sales for the fourth quarter to increase 2.5 to 3 percent, compared to year-ago figures, in line with what the parent Federated Department Stores is anticipating, according to a spokeswoman.
R. Brad Martin, chairman and ceo of Proffitt’s Inc., was among the most bullish. “We have a very optimistic and favorable outlook for the fourth quarter,” he said. “We don’t see anything in the September news other than a blip caused by the weather,” which was unusually warm.
He thinks the healthy trend seen in prior months, including July and August when the company went 7 percent ahead, will continue with holiday comp-sales coming in at 4 percent or above.
“We see nothing on the horizon for the year that wouldn’t meet our expectations.”
San Francisco-based Banana Republic is also expecting a good fourth quarter.
“The response from our consumers for fall has been quite good. The franchises in which we’ve invested, such as men’s and women’s knits and casual pants, are performing very well,” said Jeanne Jackson, ceo.
Walter Loeb, president of Loeb Associates, sees a “pent-up demand” making for “a very strong Christmas season, fueled by fashion and home furnishing sales.”
“The fly in the ointment for the fourth quarter is the credit issue that impacted Sears last week,” Loeb said. “That is going to have an effect on many retailers that offer credit.”
As reported, Sears announced on Oct. 16 that its third-quarter net rose 7.9 percent, but growing delinquencies in the retailer’s credit card business would probably cause it to miss its ambitious earnings goal of mid-teen percentage growth for the fourth quarter.
But Loeb said that Sears’ credit problem has spooked other retailers, making them cautious about running credit promotions to fuel holiday spending.
“Stores aren’t going to go after customers that have zero credit,” Loeb said. “Sears will do less credit promotion, so there may be a saner environment. Overall, there is less bankruptcy and less bad debt this year than last year. The fact that Sears has more credit card debt is particular to that company, which has made a strong drive for credit sales.”
“From our viewpoint, the outlook is still as bright as it was before,” said Brian Kendrick, vice chairman and chief operating officer, Saks Fifth Avenue.
“Neiman’s and Saks did pretty good in September (in the 5 percent comp-store range). The luxury goods sector is poised for a very solid Christmas,” Kendrick said, though he added, “There may be some pressure on broadline retailer segments. We are not seeing it.”
“The growth in the economy has been very unequally distributed,” said Management Horizons’ Steidtmann. “It’s really the very high income households that have done well. That’s what’s driving the stock market. Because the distribution of income is becoming so unequal, the bottom 60 percent of the population is actually worse off than they were six years ago. The high income households have reduced their debt burden and the increase in debt has fallen on the middle class households. They literally don’t have the open-to-buy.”
Once again, high-end retailers and stores that are extremely price promotional will do well, Steidtmann said.
Kendrick said that for Saks, September, with new fall fashions on the floor, is a better indicator of holiday trends, compared with October, which serves as “a little breather” before November and the onset of holiday shopping. October is more significant for more moderate businesses.
“We feel good about the early readings for fall,” commented Gerald Sampson, president and chief operating officer of Neiman Marcus. “Our numbers for the first couple of months looked pretty good, and I don’t see any reason why that should change. That’s as positive as you can get out of an old green-eye-shade accountant.”
“I think it’s going to be a pretty good season,” said Steve Kernkraut of Bear Stearns. “Even though September was not good, I think it was more weather-related than anything else. You still have strong consumer confidence. The big question is whether the markets hold up.
“There will be strength across the board, from the low end to the high end,” Kernkraut said.
“Retailers at our centers are very upbeat and predict a good holiday season due to the strong economy,” said a spokeswoman for The Taubman Co., which operates 23 centers in the U.S., including The Mall at Short Hills in New Jersey, The Beverly Center in Los Angeles and The Mall at Cherry Creek in Denver. “They expect mid-to-high-single-digit increases on average. Stores are making their plans and will continue to do so, and inventories are on target for the holiday season.”
“The only time we get a record Christmas tends to be coming off a recession, and we’re in the late stage of an economic recovery,” observed Daniel Barry, managing director and senior retail analyst at Merrill Lynch, during a holiday forecast sponsored last week by the Retail Marketing Society and Merrill Lynch.
“But this Christmas will be stronger than last year, and that’s the most important thing.”
Retail growth of 3 to 4 percent would outpace the 2.5 percent gain in the Gross Domestic Product forecast for the fourth quarter by Merrill Lynch.
“It’s going to be a moderate-growth Christmas, despite all the genuinely good economic news developing in the U.S.,” countered Sandra Shaber, senior vice president and director of consumer markets at Wharton Econometric Forecasting Associates (WEFA) Inc., at the same session.
“September was an especially poor period for department stores and apparel specialty stores,” Shaber said. “We’re seeing more and more people buying ‘experiences’ by traveling, joining health clubs, taking massages and the like, while spending less on merchandise in stores.”
As a result, she said, heavier inventories have been building at retail. These patterns will add up to a “very promotional” holiday for most chains, especially those in the middle market, Shaber projected.
“People are shopping later and later, so October may not bring a big recovery,” continued Shaber, who looks for business to pick up more strongly in November. “September was not a bellwether for Christmas.”
Although she does not expect holiday winners and losers to be defined entirely by retail segment, Shaber projected, in general, that department stores would continue to take share from apparel chains, and discounters would continue to erode business at department stores.
Seventeen of the nation’s major department stores and discount chains will rack up “real” sales gains averaging 5.6 percent, after inflation, in the combined November-December period this year, Merrill Lynch’s Barry forecast. This would be an increase over real growth of 4.8 percent last year and 4.3 percent in 1995.
Barry’s biggest worry about the holiday season is the potential impact of El Nino, a huge mass of warm water in the Pacific Ocean that periodically drives weather patterns in 75 percent of the world. This year’s impact is expected to be the biggest ever, possibly curtailing sales of winter apparel with unseasonably warm weather or keeping shoppers at home in stormy conditions.
“This is supposed to be a big holiday season for sweaters and outerwear; there’s lots of inventory at the stores,” Barry noted. The last El Nino made the winter of 1994-95 one of the warmest ever in the U.S.
However, Christopher Cawthorn, senior vice president of Strategic Weather Services, said at the Merrill Lynch event, “El Nino’s biggest impact on retail will be felt after Christmas.”
For November and December, Strategic Weather Services is forecasting warmer to much warmer temperatures than last year in the upper Midwest, and colder to much colder weather in the Northeast, especially New England, as well as in the lower Midwest, the Southwest, Northern California and Oregon.
At Fred Hayman, which operates on Rodeo Drive, sales are expected “to be slightly ahead” for the fourth quarter, according to owner Fred Hayman.
“I think we’ll do very well with evening clothes. Our best-selling sizes, as always, are sizes 4 and 6,” Hayman said.
At Ultimo in Dallas, opened in April, Shelle Bagot, general manager, said, “Our business has been incredibly strong this fall. We don’t have numbers to compare it to, but we are well above plan for this store.”
Velvet clothing — cited by numerous retailers as a potential big number this holiday season — as well as handbags and accessories and embroidered mesh styles have been strong sellers for fall and holiday. Leather has also checked fast, and Bagot expects the trend to continue for early spring with buff-colored suede pieces and leather shifts.
“Price is not an obstacle if it’s really special. Then it’s gone,” Bagot said. “What is interesting about business in general is that what people want from fashion has changed so dramatically,” Bagot observed. “I have more women who say they feel dated and they don’t want a matched suit. They want fabulous pieces and they want to mix resources. We rarely send anyone out top-to-bottom in one designer.”
Sales are also heating up at Tootsies, a Houston-based chain with five stores specializing in contemporary and designer fashion. The store is expecting results in the fourth quarter to match the 15 percent gain racked up so far this year. “Our business is incredible, and our outlook is very strong,” said Mickey Rosmarin, owner, noting Tootsies achieved a 20 percent sales hike in September. “The top end is as strong as it was in the late Eighties — Badgley Mischka, Platinum, Sonia Rykiel, Armani Le Collezioni and Donna Karan.”
He said, “It’s not just the same old suit” that sells. “It’s got to have something to it.” Fabrics with surface interest in simple styles are hot, including velvet, coupe de velour, printed cut velvet and embroidered and beaded mesh, he said.
The women’s apparel business at Carson Pirie Scott, based in Milwaukee, has been running double-digit increases all year except for September, according to Ed Carroll, executive vice president of marketing. Comparable-store revenues have averaged 4 to 5 percent.
“We don’t see any reason why increases won’t stay in the same region of 4 or 5 percent,” Carroll noted. “The only wild card is weather. The most important element is that the customer’s perspective has changed, and they are not buying a lot of preseason. They are buying wear-now, so the inclination is not to buy until the weather changes.”

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