Crystal Ball Remains Cloudy for 2005 Holiday Shopping Season

At this time of year, it's riskier to make a forecast for holiday retail than for the weather.

But that hasn't stopped several organizations from venturing a guess as to how retailers will perform in a holiday season that typically accounts for 50 percent of yearly sales.

Start with the biggest. The National Retail Federation just raised its holiday sales forecast to 6 percent from an earlier 5 percent, but still down from 6.7 percent in the year-ago period. A fall in gas prices since summer was reason for retailers to be more (cautiously) optimistic about November and December sales.

“As gasoline prices decrease, consumers are finding a little extra padding in their budgets,” NRF chief economist Rosalind Wells said in a statement from Washington. “Nearly every retail category has seen strong sales growth in the past few months, indicating that retailers will see positive gains as consumers continue to spend this holiday season.”

NRF expects holiday sales this year of almost $440 billion.

Gas prices and the aftermath of Hurricane Katrina won't deter consumers from spending more this holiday season over last year, according to a telephone poll Nov. 7-10 by the Gallup Organization.

Gallup said consumers plan to spend $763 on gifts, up from $730 in the estimate reported a year ago. So what some would consider a sluggish economy will not deter these shoppers, the Princeton, NJ-based market researcher said.

The Conference Board's estimate was less rosy. The New York organization claims U.S. households will spend an average of $466 on gifts these holidays, down marginally from last year's $476. Custom research firm TNS polled 5,000 U.S. households this month for the Conference Board.

Consumers seem to have less Christmas spirit this time round, said Lynn Franco, director of the Conference Board Consumer Research Center.

“This cautious attitude will have consumers shopping for bargains this season,” Franco said in a statement. “Retailers will need to offer discounts and promotions to get shoppers into their stores.”

New England households, at $568 each, will spend the most this season. Those in the East South Central (Kentucky, Tennessee, Alabama and Mississippi) and West South Central (Arkansas, Louisiana, Oklahoma and Texas) will spend the least: $423 each. Both these regions suffered from hurricanes Katrina and Rita.

The Boston Consulting Group's forecast shared the same tone as the Conference Board's. Forty percent of consumers surveyed plan to spend less during the next three months while only 23 percent may spend more. BCG said middle-market U.S. consumers are trading down and looking for value. This means they will treat themselves, family and friends to luxury gifts yet go bargain hunting for items that hold little value to them.

“This is the first time in five years of annual surveys that American consumers have been this cautious,” Michael Silverstein, BCG senior vice president and author of “Trading Up: The New American Luxury,” said in a statement. “Gas prices, hurricanes [and] terror may be causing consumers to be more careful with their money. They seem to be watching every penny.”

The top categories consumers will trade down in this year are canned foods, postal/shipping, snack foods, fast-service restaurants, paper products, household cleaners, other dry goods, accessories, laundry detergent and shaving products.

But consumers will trade up in categories like personal computers, their house or apartment, sit-down restaurants, bedding, cars, furniture, travel/vacation, home entertainment, kitchen appliances, washers/dryers and cookware.

BCG's survey found that 48 percent of consumers are trading up purchases for others, 29 percent for themselves and 22 percent for the entire family.

The consultancy said the trading up and down phenomenon affects the holidays and retailers' bottom lines. Firms that position themselves to benefit from consumers' trading up or down may do well this holiday season.

“This survey supports a trend we have seen for the past five years,” Silverstein said. “Consumers are choosing the categories of goods where they will trade up. This is one, two or three products where they want to have the very best. Otherwise, they are on a treasure hunt.”

Harris Interactive conducted the survey online Nov. 2-8 for BCG with 2,832 adults having annual household incomes of at least $35,000.

A common denominator with most surveys is their consensus that e-commerce will thrive even as offline retail's fate is decided by external factors like war, gas, natural disasters or fluctuating consumer confidence.

The Conference Board, for example, found that 34 percent of consumers plan to buy holiday gifts online this season, up slightly from 33 percent a year ago. Of that group who bought online during the 2004 holidays, 94 percent said they were happy with the e-commerce experience.

Forty-five percent of those consumers surveyed this time told the Conference Board they would choose books as gifts. Apparel and shoes were the next most popular holiday choices. Toys were close behind.

ComScore Networks is similarly optimistic that consumers will flock online to cut fuel costs and compare prices among online retailers. Discounts, free shipping, in-store pickup and easy returns will lure them as well.

According to comScore, holiday-related consumer spending on nontravel products at U.S. Web sites will climb 24 percent to cross $19 billion this year.

But e-commerce's rise is not conditional on traditional retail's woes, according to the Reston, VA-based market researcher. There's a larger buying trend afoot. Consumers are purchasing apparel and accessories, home and garden supplies, jewelry and watches over the Internet. These items traditionally were the province of store-based retail.

Ironically, Internet-only retailers may not be the biggest beneficiaries of this channel switch. As comScore learned in the 2004 holidays, multichannel retailers like Wal-Mart Stores Inc., Target Corp. and Best Buy Co. grew faster than most Internet-only retailers.

So what does this prove? That brands matter. Research backs that statement. ComScore claims that Wal-Mart, Target and Apple Computer Corp. had among the five most visited sites in October.

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