Retail Traffic

Merry Christmas? Probably Not

The year 2004 may end with a whimper, not a bang, for retailers. Following a disappointing back-to-school season and tepid summer sales, most industry watchers expect holiday sales growth well below last year's 5.1 percent.

Projections vary widely -- 3 percent to 6.5 percent growth, with high gas prices cutting discretionary spending at the one end of projections but growing housing starts encouraging home furnishings sales at the other.

Retail consulting firm Davidowitz & Associates expects a 3 to 4 percent increase in holiday sales. At the other end of the spectrum, Columbus, Ohio-based Retail Forward, is optimistic, predicting this holiday season could be the best since 1999, with 6 percent to 6.5 percent sales growth.

"Lean inventories and firm prices should help," said Frank Badillo, senior economist for Retail Forward, which is also optimistic. "Retail sales should also continue to be boosted by a healthy housing market."

Washington D.C.-based trade association National Retail Federation predicts 4.5 percent growth. "Although consumer spending has been inconsistent in recent months, we expect the holiday season to bring more stability," said Rosalind Wells, NRF's chief economist. "Home-related merchandise and consumer electronics should do well this holiday season, and trendy fashions should help spark clothing sales."

NRF concedes, however, that rising interest rates and slow income growth could hurt sales.

High-end retailers such as Neiman-Marcus or Nordstrom, however, expect a lucrative holiday season, continuing a spurt in August sales. Neiman Marcus posted a 14.4 percent increase in comparable sales for the month, well above the industry average for same-store sales of 1.1 percent. Its wealthy customers easily absorbed expensive fuel costs and still had plenty to spend at retailers.

Nordstrom, reporting same-store sales growth of 7.2 percent in August, cited increasing demand for its accessories, women's shoes and women's designer apparel.

The International Council of Shopping Centers predicts such high-end retailers could also be in for a merry Christmas due to growth in personal income among upper-middle class households. Income for that group is expected to climb due to increased stock dividends, which rose 4.4 percent in July 2004, the highest since November 2000.

"This passive income pickup provides a reason for continued strength through the holiday season in luxury market demand, which is driven by the upper-middle to high-end household income consumer," said ICSC economist Michael Niemira.

While it remains to be seen whether holiday sales growth will be the highest since 1999, the ICSC reported an encouraging fact. The calendar has 29 shopping days between Thanksgiving and Christmas -- the most since 2001. More days could mean more money.

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