With three months to go before the holiday shopping season,
retail analysts remain cautious in their early predictions, especially given
the uneasy state of the U.S. economy. “Overall, I suspect the season will be
just a little more moderate than 2010, but it’s hard to tell — we are at a
point and time where uncertainty is relatively widespread,” said Michael
Niemera, chief economist and director of research at the International Council
of Shopping Centers (ICSC).
Some analysts also worry that retailers may find this season
especially difficult because lingering fears about economic instability are
further fueled by volatile markets and the U.S. credit downgrade. “It’s going
to be difficult for retailers to have the same growth this year as last,
especially with the continuing concerns about unemployment and the economy,”
noted Ellen Davis, vice president, National Retail Federation (NRF).
There is, however, some optimism for the all-important
holiday sales. Retailers, who started to prepare for Christmas as early as
June, are proactive and confident moving into the end of the year. “Many
retailers are trying to get a sense of consumer trends, looking at consumer
spending patterns, the types of deals that are interesting, the types of
products that are selling well and what other promotions are resonating with
shoppers,” noted Davis. “They are moving more merchandise into the marketplace
and are forecasting sales to pick up in the fourth quarter.”
Niemera also sees signs of an assured retail attitude going into the second half of the year. “If
retailers really expect a recession to redevelop, then they obviously plan
differently, but I don’t think that general view is out there right now. What
you expect as a retailer is continued expansion, maybe relatively slow, but
still a positive year.”
While some analysts are
heartened by retailers’ attitudes, others fear that they could be overextending
themselves this winter. “Retailers have likely not planned for a negative
scenario in their purchasing,” warned Robin Lewis, chief executive officer
(CEO) of The Robin Report, based in New York. “And if the economy stalls,
I’m expecting to see a bloodbath of discounting as they try to deal with their
excess inventory.”
Luxury Still Strong
All retailers, however, are not made equal. Most analysts
expect luxury retailers, for example, to do better than their colleagues as
they continue to ride a wave of robust luxury spending. “The high end tends to
be more resilient and tends to outperform,” noted David Wu, a luxury retail
analyst at New York–based Telsey Advisory Group. For the first half of the year, Wu
declared, luxury has been holding strong, “and we do expect the momentum to
continue going forward.”
Luxury retailers are also courting their consumer base more
aggressively than other businesses. “We are noticing a lot of these luxury
players responding to higher demand,” stated Wu. “We are starting to see an
acceleration of marketing to really drive holiday sales. The general trend in
the luxury sector has been an increase in spending on advertising and promotion
that is essentially across the board.”
Wu predicts that these marketing initiatives, which kicked
off at the beginning of the year, will continue to pay dividends in the later
half of 2011. “Consumers have really responded to these up-market product
initiatives in the spring and summer, and that should carry through to the fall
and winter.”
Gauging Price Concerns
One unknown variable that
is causing analysts and retailers some alarm is the ever-increasing costs of
commodities, precious metals and diamonds, which are translating into higher
price tags for staple holiday items, such as clothing and jewelry. Though the
higher costs are expected to be most detrimental to discount retailers because
of their smaller profit margins, it still remains to be seen how prices will
affect the market as a whole this December.
One certainty, however, is
that current high prices are here to stay. “Most retailers hope that some of
the price pressures going forward will ease, but they are locked in with the
prices that exist today. And while there has been a little easing on prices
recently, they are still more elevated than in the past few years,” said
Niemera.
Future indicators
Market analysts
undoubtedly will be keeping a close eye on overall economic indicators because
a shaky macroeconomic climate could certainly inhibit consumer spending. “If
the back-to-school season shows weakness, if consumers hold back and wait for
discounting to happen and the retailers blink first, that will not bode well
for what the holiday season might look like,” advised Lewis. “Also, look at the
jobless numbers. If those continue to hover around the 9 percent range, I
expect a dip in consumer confidence and a commensurate unwillingness to spend.”
Article from the Rapaport Magazine - September 2011. To subscribe click here.