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Retailers hoping for best
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November 20, 2001: 10:14 a.m. ET
As Thanksgiving nears, stores try to gauge consumers' buying mood.
By Staff Writer John Chartier
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NEW YORK (CNN/Money) - Just three days before one of the biggest shopping days of the year, retail and consumer experts wonder how much a sour economy and terrorism fears will affect holiday spending.
Retailers -- which have been smarting all year as consumers weathered layoffs and a volatile stock market -- are hoping the Sept. 11 terrorist attacks will spur Americans to take refuge in holiday shopping and celebration instead of cocooning themselves at home, as many analysts are predicting.
"If you've got a child, you're going to buy as many presents as past years, but it's the Uncle Harrys or Aunt Marys -- are you going to be bothered with them?" said Delos Smith, senior business analyst at the Conference Board, a private research group that tracks consumer confidence.
Retail stocks have slumped since the attacks as consumers took refuge at home -- watching coverage on TV, looking to family and friends for comfort, and staying away from large public places for fear of another incident. Retailers have lost about $5 billion in sales since Sept. 11, estimates Michael Niemira, vice president and senior economist with the Bank of Tokyo-Mitsubishi, which publishes a weekly snapshot of chain-store sales.
The resulting downturn in spending has helped push the U.S. economy closer to recession. If holiday sales turn in a weak performance, a full-blown recession will likely follow, economists believe.
That's why retailers and those who invest in their stocks will be frantically trying to gauge consumer behavior Friday, the day after Thanksgiving. It marks the unofficial start of the holiday shopping season and is the second-busiest shopping day of the year.
It is such an important indicator that merchants often refer to it as "Black Friday" -- meaning they hope to generate enough sales to change the red ink that once marked losses in old-fashioned ledgers to profits, recorded in black ink.
But just how consumers will react remains something of a puzzle. Almost no one doubts the pace of spending will tumble, but will sales show a slight increase, or dip into negative territory?
The National Retail Federation is predicting holiday sales will increase between 2.5 percent and 3 percent from a year earlier. Though the figure is down from the 5 percent or 6 percent increase posted in 2000, it's still on the positive side.
Pam Stubing, a retail analyst with Ernst & Young, told CNNfn's The Biz last week that she anticipates holiday sales will range from a 1 percent increase to negative from a year ago. A negative figure would be the first since 1990, she said.
An Oct. 26 survey conducted by Roper ASW indicated 26 percent of Americans planned to spend less this holiday season. A big chunk, a majority of 54 percent, said they would spend the same as
last year.
"Americans are really determined to live life as normal. People are pretty determined to do what they normally do," said Diane Crispell, Roper's editor-at-large.
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Americans are really determined to live life as normal. People are pretty determined to do what they normally do.
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Diane Crispell
Editor-At-Large
RoperASW |
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However, some analysts paint a grimmer picture. Consumers have been shifting their dollars to discount chains such as Wal-Mart Stores (WMT: down $0.08 to $55.67, Research, Estimates), Target (TGT: down $1.07 to $36.72, Research, Estimates), and Kohl's (KSS: down $0.04 to $66.69, Research, Estimates) and away from more upscale department stores and specialty boutiques -- which typically rely more heavily on holiday receipts -- as economic pressures have them rooting out bargains.
Though retailers have done their best to plan for such a trend in ordering their holiday inventories back in July, several are already heavily discounting merchandise and others are already or planning to turn back previously ordered items because of the terrorist attacks.
"As we get through the season, department stores are going to be brutal in throwing merchandise back to vendors," said Bill Dreher, a retail analyst at Robertson Stephens.
Given the way retail has behaved over the last several months, Dreher, who follows discount chains and department stores, said it would not be surprising to see sales at stores open at least a year, a key gauge known as same-store sales, fall 5-to-8 percent in the fourth quarter.
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By the same token, comparable-store inventories could be up 2-to-5 percent in the current quarter. That's normally not a big deal, Dreher said, except that if sales decline close to 10 percent, retailers are likely to roll out holiday promotions and clearance-level discounts earlier than normal.
"On its own, a comp-store inventory increase of 2-to-5 percent is no big deal." Dreher said. "But when you've got comp-store sales declines of closer to 10 percent, you're dealing with a possible 10-point spread, which we believe is going to cause retailers to push the promotional panic button earlier than they would have."
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As we get through the season, department stores are going to be brutal in throwing merchandise back to vendors.
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Bill Dreher
Retail analyst
Robertson Stephens |
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One thing to keep in mind, Bank of Tokyo's Niemira says, is that despite all the negative economic news, Americans generally have more money in their pockets to spend on gifts. The problem is they're being more cautious in case their personal situations worsen.
Between tax rebate checks, lower gasoline prices, and declining credit card debt, Americans are not in as bad shape as it would seem.
"Real discretionary purchasing power has picked up this year, and is relatively strong," Niemira said.
Another positive for the industry is that it had been planning for a lackluster year even before the Sept. 11 attacks.
But, Niemira cautions that sluggish spending will likely drive earlier-than-planned discounts.
"I think initially the industry will try to keep the discounts more narrowly focused. The problem is, if sales don't pick up, retailers will start to spread out discounts to those goods not selling as well," Niemira said. 
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