Holiday 2006: Retail winners and losers
Clothing, jewelry, online merchants will lead the way, home improvement, department stores seen struggling.
By Parija B. Kavilanz, staff writer

NEW YORK ( -- The recent drop in gas prices has given a needed boost to shoppers ahead of the holidays but retail experts aren't convinced that will translate into big sales gains for store chains.

Frank Badillo, senior economist with market research and consulting firm Retail Forward, thinks the upcoming holiday shopping season will be "good" but "not great."

Fisher-Price's 10th anniversary of the Sesame Street doll is a hysterically laughing, belly-clutching, floor-thumping extreme version of itself. However, Elmo fans could face a shortage of the new doll over the holidays
No. 2 home improvement retailer sets strategy to spur sales amid 'challenging' business environment. (more)
New gift card trends for holiday: Peppermint, and eco-friendly cards made from corn. (more)
Fisher-Price's 10th anniversary of the Sesame Street doll is a hysterically laughing, belly-clutching, floor-thumping extreme version of itself. (more)
Industry trade group expects 'subdued' gain of 5% to $457.4B, falling short of 2005 season. (more)

The holidays are crucial for retailers since November and December often provide 50 percent or more of merchants' annual sales and profits.

Badillo expects fourth-quarter holiday sales to grow about 5.5 percent this year, slower than the 7 percent growth seen in the previous two holiday seasons, according to Retail Forward's estimates.

One bright spot? Online sales, where growth is expected to sizzle.

He delivered his forecast Wednesday during a Web cast of Retail Forward's holiday outlook.

For its part, the National Retail Federation (NRF), the industry's largest trade group, said it expects holiday sales to be "subdued" this year, forecasting a gain of 5 percent to $457.4 billion, which would fall short of last year's 6.1 increase.

Despite the summer surge in gas prices above $3 a gallon, retail sales have held up relatively well so far this year.

The subsequent drop at the pump should only help to "sustain the healthy pace of sales and especially the low-income shoppers," he said.

But gas prices are only the first of the trifecta of potential risks threatening consumer spending, with the softening housing market and higher interest rates still very much in play.

"Housing is the more immediate drag. The big unknown is how deep the housing slowdown will be," Badillo said.

In this environment, home improvement retailers become an immediate casualty, he said.

To his point, both Home Depot (Charts) and Lowe's (Charts) warned recently that their full-year results, blaming the housing-related spending slowdown.

While high debt loads and higher interest rates are making consumers more cautious, economists warn that the housing market could be a bigger problem down the road.

For years rising home values made consumers feel wealthier, acting as a bulwark against rising energy prices. When interest rates were falling and home prices were rising, Americans quickly refinanced their mortgages at lower rates, effectively turning their homes into piggy banks, and tapping into them for cash.

All that has changed.

"Longer-term, consumer prices are important too," Badillo said. "Government data shows core inflation is creeping up. If that trend continues, it will put pressure on the Federal Reserve to possibly increase rates further."

Winners and losers

Badillio said this year's list of winners and losers should broadly mirror last season's pattern.

Home improvement stores will be laggards, he said. But consumer electronics chains like Best Buy (Charts) and Circuit City (Charts) and other appliance merchants could exceed last year's sales gains, he added.

Clothing chains are coming off a very strong season last year and therefore have tougher comparisons to a year ago. Even so, he forecasts the sector to log a 5 percent sales gain over the holidays versus last year's 8 percent increase.

Department stores will have a tough season, with a few exceptions. He singled out high-end chain Nordstrom (Charts) and mid-priced chain Kohl's as likely winners.

Mass-market sellers Wal-Mart (Charts), Target and warehouse club operators like Costco should still manage double-digit sales gains in the fourth-quarter, Badillo said. "These retailers are benefiting from new store openings. They've also become one-stop shopping destinations for consumers because their lower prices are helping to alleviate the burden of higher gas prices."

Lastly, online sales will continue to sizzle in the months ahead, Badillo said, adding that online sales this year are on track to increase 23 percent over last year to $33 billion in the fourth quarter.

"Online retailing is the fastest-growing retail segment. This segment will represent more than 3 percent of total retail sales for the first time ever this year," he said.

Hot winter trends

Plaid clothing, scarves and bags, handknit sweaters, layers of necklaces, T.M.X. Elmo and PSP3 are among the hottest gift trends this year, according to Dan Butler, NRF's vice president of retail operations and merchandising.

In men's clothing, springtime is coming a season early with retailers expect to offer cashmere sweaters in bright colors like green and lemon, Butler said Friday during the NRF's media briefing about the upcoming holiday season.

For kids, the must-have items include Fisher-Price's 10th anniversary T.M.X Elmo, Sony's Playstation 3, Apple's iPod and the perennial favorite -- Barbie from Mattel.

And iPods, cellphones and computers and computer accessories will be the gift of choice for teen consumers, he said.

Holiday shopping is often an anxious time for gift-buyers. So Butler also offered his top tips to alleviate some of the stress.

His top "insider" tip for consumers: Shop after 6:00 P.M. the day before the big deals start. In other words, if the ad says the storewide holiday discounts kick-off on a Wednesday, don't wait until Wednesday to rush to the store.

"Usually the special discounts get put into the system after 6:00 p.m. the day before and you can beat the crowds," said Butler.

'Lowe's: Housing 'correction' may take 18 months

Stop 'n smell the gift cards

Holidays won't get help from lower gas Top of page

Follow the news that matters to you. Create your own alert to be notified on topics you're interested in.

Or, visit Popular Alerts for suggestions.
Manage alerts | What is this?