Estimated holiday retail sales are targeted to reach $447.1 billion, an increase of 2.3% above the 2009 holiday season, according to the National Retail Federation (NRF). The estimate keeps the momentum moving in the right direction, following a 2008 holiday season in which sales fell by -3.9% and the 2009 season when sales rose a measly 0.4%.
The retailers themselves are nervous, though, carefully watching unemployment numbers and consumer confidence indexes. The recession may have officially ended more than a year ago, but retailers aren’t convinced.
Some retailers, like Wal-Mart Stores, Inc. (NYSE: WMT) are expecting a competitive holiday selling season with a lot of focus on prices. The Talbots Inc. (NYSE: TLB) cut its forecast for the coming quarter based on expectations of less traffic. Saks Inc. (NYSE: SKS) is actually closing another store before the holiday season.
According to the NRF, shoppers will concentrate on price and retailers will shift to meet that focus “by offering significant promotions throughout the holiday season and emphasizing value throughout their marketing efforts.” That’s pretty much what retailers have been doing for more than two years now.
In order for stores to make a profit with lower prices and uncertain traffic, they need to manage their costs. The NRF note that “retailers are expected to focus on supply chain efficiencies and inventory control this holiday season to limit their exposure to excess merchandise and unplanned markdowns.”
How bad is it for consumers? The Wall Street Journal reports that the top 60% of income earners ($57,944 and higher) spent an average of about 13.4% less on apparel and services in 2009 than they did in 2007. The bottom 40% of earners are spending about 12.8% more, but that is almost surely due to rising prices and not wild-eyed profligacy.
Department store stocks rose early this morning on the NRF report, but the ADP report on employment has chilled the sector, which is down at this moment by about -0.5%. What this indicates for many retailers is that discounters have a better shot at making a profit, and that no matter what your business was at one time, low prices now rule.
Wal-Mart shares are up about 1%, while Talbots and Saks have each lost about -1.5%.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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