September 22, 2004

Expensive Gas and Nasty Weather Depress Retail Hopes

Before tropical storms closed stores and wiped out homes, when people thought the war in Iraq would soon be over, and before gasoline approached $2 a gallon, retailers and researchers were nearly all predicting a bang-up holiday shopping season, starting this Thanksgiving.

But yesterday, as retailing trade groups and consultants rushed to get out their predictions before anyone else, it was obvious that, within the last couple of months, some expectations had been noticeably lowered, while one group, at least, remained stubbornly optimistic.

Retail Forward, a market research and management consulting group based in Columbus, Ohio, came out with the cheeriest projection so far: the best Christmas since 1999, with an estimated 6 to 6.5 percent growth from last year.

"The key drag on retail sales last year is gone, namely the lack of job creation," said Steve Spiwak, senior economist at Retail Forward. "The bounceback in the jobs market is bolstering incomes, and that's the key driver of consumer spending, outweighing the impact of gas prices." Mr. Spiwak figured in the stock market, "which certainly flattened after last year's bounceback," he said.

Nevertheless, he said, "lagging wealth effects will continue to stoke sales among the more affluent households. Consumers with incomes greater than $100,000 make up about 40 percent of overall retail sales." He added that the nation's thriving housing market would continue to fuel sales in the home furnishings and do-it-yourself areas.

Yet the National Retail Federation, a trade group based in Washington that is known for its sunny perspectives, was more restrained. Yesterday morning, the federation predicted that sales growth during the holiday season would be a moderate 4.5 percent.

"Retailers know they will have their work cut out for them this holiday season, but they are up to the challenge," said Tracy Mullin, the group's chief executive.

Asked for her reaction to Retail Forward's rosier projection, Ms. Mullin replied: "From their lips to God's ears."

At the same time, Marshal Cohen, the chief industry analyst for the NPD Group, market consultants in Port Washington, N.Y., said his group was predicting growth in line with last year's 3.7 percent.

"Do people have more money to spend on Christmas this year than they did last year?" he asked. "We don't think so." Mr. Cohen said it was "a trifle premature" for a forecast.

Nevertheless, he predicted that shoppers distracted by presidential politics would delay their shopping at least until after the election. By that time, he said, retailers would be getting nervous and would start putting merchandise on sale, reducing their profits.

But Mr. Cohen, along with other retailing experts, said that, over the last year, retailers had succeeded in reducing flabby inventory, and predicted that reduced-price selling would not get out of control. "Profit-wise they'll be O.K.," he said. "But sales volume won't rise much more than it did last year, about 3.7 percent. They're going to do that much better, but it's not going to be great."