NEW YORK — Talk about going out on a limb.
Despite the unpredictability of world events and the roller coaster nature of retailing, The National Retail Federation trade group is projecting holiday ’03 sales to grow by 5.7 percent over last year. That would bring the season’s spending to $217.4 billion and make it the best since 1999.
The NRF’s chief economist, Rosalind Wells, also made the surprising prediction that price slashing, which has been escalating for years and has become as much a part of the Christmas season as Santa, could be more subdued in the months ahead.
“We are very optimistic that retailers will enjoy a happy holiday season,” said Wells at a news conference at the Toys ‘R’ Us flagship in Times Square Tuesday. “Both the economy and retail sales are picking up momentum. We expect greater momentum in the third and fourth quarters.”
As far as price promoting, “there will be less of that this year because of the stronger [economic] environment,” Wells contended.
What’s the basis for being so bullish? Wells said there have been “four consecutive months of retail growth, and business investment saw a decided turnaround in the second quarter.” That includes spending by businesses on equipment and software, which jumped 8 percent at an annual rate in the second quarter following little or no spending since 2000.
The NRF defines holiday sales as total sales — not comparable-store sales — in November and December at general merchandisers and stores specializing in apparel, accessories, furniture, home furnishings, electronics, appliances, sporting goods, hobbies, books or music. It’s a category known as GAFS sales.
In the first quarter, GAFS sales rose 1.4 percent, then 3.1 percent in the second quarter, 6.4 percent in July and 5.1 percent in August. “September looks very solid,” Wells said. “Back-to-school merchandise sold very well. Third-quarter GAFS look like 5.8 percent.” She also cited low interest rates, though they have begun to inch up, as well as low inflation, rising equity markets, mounting consumer confidence with households having more disposable income because of withholding tax cuts and child tax credit checks.
Furthermore, considering the difficulties retailers experienced last year and through the first half of this year, comparisons should be very easy, she said. “Retail sales gains for the 2003 holiday season will be far better than the meager increases retailers experienced a year ago,” Wells said. Holiday sales in 2002 increased 2.2 percent to $205.6 billion.
However, rising unemployment, rising energy costs, geopolitical concerns and deflation pose risks. Deflation was 2.5 percent last year and is running at 3 percent this year. “Real GAFS is higher than the numbers would imply,” Wells said, noting that a 5.7 percent holiday sales increase represents 8.7 percent real unit increase. And Wells did say there could be some slowing in retail sales next year.
Also present at the briefing were Richard Markee, vice chairman of Toys ‘R’ Us, and Louis Fortunoff, executive vice president of Fortunoff’s, who said the season should be boosted by newness in the market. Chandelier earrings, diamonds and jewelry with leather or rubber are selling well, Fortunoff said. Last year, assortments were “stale,” even before they hit the selling floors, in some cases.
Last year, NRF was off on its forecast. The trade group initially projected holiday sales increasing 4 percent, then revised the forecast to 3.5 percent the day after Christmas. Sales actually rose 2.2 percent, the smallest increase since NRF started tracking sales in 1992. Wells said the NRF’s miscalculations last year stemmed from underestimating deflation and overestimating the economy.
According to Tracy Mullin, president and chief executive officer of the NRF, the holiday season accounts for 20 to 40 percent of a retail sales, while retail sales overall account for two-thirds of the nation’s economic activity.