(MONEY Magazine) – When the going gets tough, the tough go shopping—sort of. That's the mantra lately of Dana Telsey, a Bear Stearns senior managing director and retail-industry analyst who's known for multistate shopping sprees that help her keep close tabs on shops and shoppers. I asked Telsey in late October about the psyche of today's consumer, battered by geopolitical fears, economic uncertainties and soaring energy costs. These issues are indeed hurting some retail stocks, but her outlook for the holidays is not without cheer. High-end goods are doing well, electronics are big, and (gasp!) Jordache and Calvins are back in a big way. And as if that weren't enough of a '70s flashback, brace yourself for one more: the return of the down jacket.

Q. How do things look for retailers today?

A. The environment is challenging. Energy prices are now the main obstacle to stronger consumer spending—energy accounts for around 9% of total consumer spending—but we're also seeing a split between consumers on the high end and low end. High-enders continue to spend, driven by product newness, whether it's in jewelry, in fur or in apparel. At the lower end, people are watching their dollars more carefully by limiting their visits to malls. The mall-based retailers overall had one of their roughest Septembers in a while, what with energy prices plus hurricanes in the Southeast and record heat in the Midwest. Retailers are still selling goods at full price on good margins—but it's going to be tough for many of them to show improvement over last year.

Q. What's the holiday shopping picture?

A. We have 29 days between Thanksgiving and Christmas this year vs. 27 in 2003. Last year we had a holiday season sales gain of around 5%, but then again this year you have these higher energy prices. We should be up at least 3% to 4% in terms of Christmas sales, driven by fewer trips to the mall but higher average transaction amounts when shoppers do go there.

Q. How do retailers excel this season?

A. They must flow in their merchandise more carefully. What I mean is that by the week of Oct. 24—yes, that early!—they will have had to showcase their inventories to make sure there's "newness" in there. There's one thing consumers don't want to see: the same stuff as last year. They won't buy it.

Q. What do consumers want to see?

A. We think digital TVs will be very popular. Ponchos will continue to be very popular. Fur too. Definitely jewelry—we're seeing more women buying jewelry for themselves. And people like colors: greens, oranges, reds and pinks.

Q. Fur? You talking real or fake here?

A. It could be real or fake—as long as it's a scarf or some other fur accessory. By the way, Ron, we're also seeing interest in capelets, which is a shorter poncho, essentially.

Q. I know. My wife has one, maybe more; I never find out until after I get the bill. So tell us what else is hot?

A. Denim jeans. We're seeing a broader assortment of denim jeans than we've seen in the past, and a lighter wash is going to become more popular.

Q. Don't tell me I'm back in high school!

A. Yeah. Even in some of the brands, whether it's Jordache or Calvin Klein.

Q. The only thing between me and my Calvins is an extra 20 pounds. Any other throwback items?

A. Down coats are back—puffy coats.

Q. We'll have to call them P. Diddy coats now. Who is best positioned for the Christmas season this year?

A. Coach, because its inventory looks unique, different. Victoria's Secret (a unit of Limited Brands) has a new "pink" department that caters to teens. And American Eagle Outfitters is ready for Christmas and is definitely a denim destination.

Q. You mentioned tight inventories earlier. Is the pre-Christmas markdown over?

A. I think that's true on a more selective basis. One of the things that's different about this December is that most everyone had a pretty good Christmas last December. It'll be hard to beat last year's numbers, and that's going to force many retailers to differentiate themselves from competitors so that they have a shot at getting more buyers.

Q. Wal-Mart and other giants have been predicting especially modest gains, from 0% to 4%. What's happening there?

A. The goal of the big names these days is to be category killers in specific areas. Wal-Mart has done well in some of the basics, like pet supplies. Their stores have begun to look better lately, and there's definitely more attention being paid to labor scheduling and major categories like apparel and consumer electronics. Target looks good too. They've put branded assortments in their stores from designers who make goods for them—they've become a sort of branded discounter. A wider range of incomes is now shopping Target.

Q. You brought up category killing at Wal-Mart. We've seen what Wal-Mart did to Toys R Us and F.A.O. Schwarz. Is Wal-Mart's electronics push going to pose a problem this holiday season for the likes of Best Buy and Circuit City?

A. Best Buy is a bit different. Its focus is on the customer and on explaining the home theaters and the digital cameras. Best Buy has clearly differentiated itself from other retailers, and is increasing the number of holiday workers in stores so it can be even more customer-focused. If there's one company where we've seen an increase in traffic lately, it's been at Best Buy.

Q. But Wal-Mart will still try to kill them on price, right?

A. Yes, but I think it's a little bit different customer. You don't have the service or the selection at Wal-Mart.

Q. What about the post-holiday season? Are gift cards having an impact?

A. The weeks after Christmas are now an important part of holiday spending, given the lean inventories and the redemption of gift cards. Around 70% of gift cards are typically redeemed by the end of January, and gift cards now account for anywhere between 5% and 10% of holiday season sales.

Q. Thanks, Dana. To all a good night!