Unemployment remains high, consumer and business confidence is plunging, financial markets are in turmoil, and predictions on holiday sales largely agree that growth will be slower than last year.

holiday sales, Kantar Retail, Frank Badillo, senior economist, ShopperScape consumer survey, America’s Research Group, ShopperTrak, International Council of Shopping Centers, Christmas items, Costco Wholesale Corp., Sears Holdings Corp.’s Kmart chain, Toys “R” Us Inc.

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Inside This Issue - News

The holiday outlook

October 3rd, 2011

NEW YORK – Unemployment remains high, consumer and business confidence is plunging, financial markets are in turmoil, and predictions on holiday sales largely agree that growth will be slower than last year.

Forecasting fourth quarter sales growth at just half of last year’s, Kantar Retail has bluntly declared that it is not a question of whether holiday sales will be weak but of how weak they will be. The retail consulting firm projects that retail sales excluding automobiles and fuel will rise 2.8%, compared with 5.6% in the fourth quarter of 2010.

Kantar is even more downbeat on unit volume, which it forecasts to be flat for the holidays, with a significant possibility of turning negative by year-end. "If unit volume or inflation-adjusted growth turns negative for retail sales, it would likely coincide with a recession in the overall economy," said Frank Badillo, senior economist for Kantar. "While the outlook isn’t negative for all retail sectors, it will be driven by the degree to which declining confidence affects spending ­decisions."

Kantar expects businesses to continue to hold back on investment and hiring, which will worsen job and income prospects for households, which in turn will restrain their spending. "The probability is high that this will lead to another recession unless some positive shock — such as government stimulus — keeps the period of heightened uncertainty short and quickly starts to lift consumer and business confidence," said Badillo.

Kantar’s ShopperScape consumer survey conducted in August found that 50% of respondents intend to spend about the same amount on holiday gifts as last year, while 35% plan to spend much or somewhat less, and 9% expect to spend much or somewhat more. Those numbers actually represent an improvement over last year, when 43% expected to spend less and only 7% planned to spend more.

A telephone survey that was conducted by America’s Research Group in early September yielded roughly similar results, with 82% of those polled saying they plan to spend less (27%) or the same (55%) as last year.

Modest sales growth in November and December is predicted by ShopperTrak, which specializes in measuring retail customer traffic. The store traffic analyst projects retail sales to grow 3%, compared with the 4.1% increase that was achieved in the same period last year.

However, ShopperTrak also foresees store foot traffic declining 2.2% as a result of lingering high unemployment and a 33% surge in gasoline prices year over year. "The persistently high unemployment and fuel rates, along with consumers’ conservative purchasing attitudes, will affect spending this holiday season more than in recent years," said Bill Martin, cofounder of ShopperTrak. "Every shopper in a store will be more valuable than last year, and retail stores should be ready to convert their holiday shoppers into sales."

The International Council of Shopping Centers (ICSC) also anticipates a more subdued holiday season this year. Retail sales through shopping centers are expected to rise 2.2% year over year in November and December, well below the 5% gain in 2010.

Consistent with the ShopperTrak forecast of lower foot traffic, Kantar expects nonstore retailers to outpace the industry. Online, catalog and electronic home shopping sales are projected to grow 9%, while online retail sales alone are calculated to surge 13.5%.

In the mass market Kantar sees the brightest outlook for small-box discounters such as dollar stores, which are expected to maintain robust sales growth of 7%, compared with 2% for big-box mass merchants, 2% for drug stores and 3.5% for supermarkets.

Retailers are responding to the environment in various ways. Walmart, for example, revived its layaway program, which it had abandoned several years ago. Sears Holdings Corp.’s Kmart chain reinstituted layaway during the recession, as did toy retailer Toys “R” Us Inc.

The holiday selling season continues to creep up the calendar for a number of retailers. Christmas items began appearing in Costco Wholesale Corp. warehouses on September 1, while Walmart began stocking Christmas merchandise in late September, up from mid-October in prior years.