US Retailers Face the Acid Test: Will Sales Pick Up This Holiday Season?

Approaching a holiday shopping season critical to economic recovery, US retailers are bracing for a difficult period with credit still tight and consumer caution lingering.

Many early projections suggests retail spending in the final two months of 2009 -- a season that accounts for a large proportion of sales and profits -- will be flat or lower.

Consulting group Deloitte expects total holiday sales to be around 810 billion dollars excluding cars and gasoline, unchanged from a year ago.

That would be better than last season's 2.4 percent decrease, which was the first decline since 1967, according to Deloitte.

"Although there are signs that suggest the economy is nearing the end of its darkest days, many consumers remain burdened by restricted credit availability, high unemployment and foreclosures," said Carl Steidtmann, chief economist with Deloitte Research.

"Americans continue to save at historically high rates while also paying down debt, and these factors combined suggest another chilly holiday season for retailers."

Others point out that retailers are being squeezed by tight credit that prevents them from stocking up as much as they might like, and the concern that consumers will pull back further.

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"Retailers are still caught between a rock and a hard place," said Ted Vaughan, partner in the consultancy BDO Seidman LLP.

"Reducing inventory is necessary, but retailers run the risk of hindering selection, which can lead to disappointed customers and fewer sales. On the other hand, merchandise overflow can lead to a frenzy of deep discounts, which can cheapen the brand and slash profits."

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The research firm Retail Forward also expects flat spending over the holiday season, saying it would be the worst in 42 years behind last year's tumble.

The group sees apparel and home furnishing sales falling 2.0 percent compared with last year, and grimmer results for consumer electronics stores.

Sung Won Sohn, economist at California State University, said there is a danger of an economic relapse if retailers and consumers remain gripped by fear.

"Expecting weak economic recovery in demand ahead including the upcoming holiday shopping season, the employers are in no mood to start hiring," Sohn said.

"They want to make sure that a sustained economic recovery is here before hiring. This type of fear could undermine the budding economic recovery."

A slightly more upbeat outlook came from the International Council of Shopping Centers, which projects a 1.0 percent increase in same-store sales in November and December. With January included, sales may rise 1.5 percent, their best performance in three years, ICSC said.

"Retailers will experience their first non-recession holiday season in three years, and economic growth is fundamentally on the mend, even though there will be lingering pockets of weakness," said ICSC chief economist Michael Niemira.

"The wear and tear of the recession and financial crisis on the consumer psyche are slowly giving way to renewed hope, optimism and most likely gift buying."

Joel Naroff at Naroff Economic Advisors said prospects remain bleak unless confidence improves.

"Until we break the logjam in confidence, the prospects are for a mediocre holiday season at best," he said.

"There is the possibility it could turn out better than we fear now. There are so many people with jobs and income who are still spending as if they could lose their jobs. If we get to the holiday season they may decide to splurge a little. If that happens then we might be surprised with the level of sales."

Source-AFP
TAN