The new grinch of holiday shopping

Advertiser News Services

Even the magic of the three ghosts of Christmas won't help this year.

Even before the events of Sept. 11, retail experts had predicted shoppers would spend less this holiday season. Associated Press

Fewer sales workers will walk the floors of some chains. More "sale" signs will punctuate the displays.

And shoppers, retail experts say, will spend less.

The country's business and political leaders have been fighting this kind of pessimism about shopping. "Bah!" they say, "go to the stores!" But retailers and their close observers have already re-forecast their outlook for Christmas.

Holiday spending, which before Sept. 11 was expected to be mediocre, is now projected to be the worst in years. The National Retail Federation, known for its more optimistic projections, is expecting November-December holiday sales to advance by as little as 2.5 percent. That would be its smallest recorded increase since 1990.

Other outlooks are even more bleak.

Britt Beemer, chairman of America's Research Group, a Charleston, S.C.-based market research firm, says he expects holiday sales to drop 3.5 percent to 4 percent from last year — his worst estimate since 1970.

"This year is just going to be a disaster," he said. "Let's just trade trash for cash and put this year behind us and have clean inventories when January rolls around."

What he means is that a lot of retailers are finding themselves caught with too much merchandise and not enough buyers. As consumers stay home to follow news events and rethink their finances, Coach purses and Cuisinarts languish on shelves.

It wouldn't be so bad if this wasn't such a critical time for retailers.

Holiday merchandise is arriving, and stores need room to display it. So prices on existing inventories are being slashed. In the past weeks, Lord & Taylor and Filene's put up 70-percent-off signs. Nordstrom, which normally holds just three sales a year, launched its first-ever event for fall.

"We wanted to move inventory and boost sales," said Nordstrom spokeswoman Shasha Richardson. "We also hope to give customers a reason to shop during uncertain economic times."

But all this price-cutting comes at a cost.

Some retailers are looking at ways to offset declining profits by reducing staff and inventory. The reverberations will be felt by more than consumers. Suppliers from Estee Lauder to Tommy Hilfiger adjusted their earnings outlooks based on falling sales or expectations of reduced orders.

Still, industry experts say there will be casualties. In January, some failure notices will come, they say, just as they did last year from Bradlees, Montgomery Ward, Apex and Ann & Hope.

The kick in the head is that sales were poor before September. The Gap Inc. might have surprised some observers this month when it said same-store receipts dropped 17 percent in September, but its sales dropped by 17 percent in August, as well.

Overall, retail sales growth fell short of expectations and many apparel-intensive chains posted declines.

"It's the first real fall month," said Kurt Barnard, president of Barnard's Retail Trend Report. "The weather has turned. It's getting cold. Now is when people are expected to go back to stores."

But they haven't.

TJX Cos. Inc., the Framingham, Mass.-based owner of T.J. Maxx, said aggressive price cuts forced it to lower third-quarter profit estimates to 54 cents a share from 56 cents. Nordstrom said sales at stores open at least a year dropped by 9.4 percent in September.

And May Department Stores Co., the parent of Lord & Taylor and Filene's, said sales at stores open at least a year dropped 10.9 percent in September. The merchant said third-quarter sales will not meet analysts' estimates.

"We are not at the point where we are prepared to talk about this," said Robin Reibel, spokeswoman for Filene's. While May expects to report lower earnings, Reibel said the retailer still plans to hire holiday workers in numbers that are "in the same ball park" as past years.

Markdowns on holiday goods are coming about three weeks earlier than in the past, analysts said.

"There's definitely more discounted holiday merchandise than a year ago," said Kurt Barnard, president of Barnard's Retail Trend Report. "Nobody is certain how the holiday season will unfold."

The analysts say stores are better off discounting heavily, even if it means risking their profit margins, rather than be burdened with too much inventory in January.

"With holiday discounting there has always been a dance between the consumer and retailers, and it was always a matter of who blinks first," said Cary Silvers, vice president of Roper Reports, a division of Roper ASW, a market research firm. "Now is no time to stare down the consumer. Get them in now."

Mall traffic has fluctuated since the attacks, dropping off when the FBI announced terrorism alerts on Oct. 11 and Oct. 29, according to the RCT Retail Index, which tracks 200 malls and 800 department stores nationwide. Traffic was down 5.3 percent for the month of October from the year-ago period.

Based on recent surveys, retail consultants believe consumers' shopping patterns are shifting. People are spending more time in stores close to home and less in malls and downtown shopping districts, according to Roper ASW's survey of 1,000 consumers.

C. Britt Beemer, chairman of America's Research Group, based in Charleston, S.C., believes consumers are becoming more purposeful as they shop.

"You are not going to see people aimlessly go shopping," he said.

That's why he believes that stores should use whatever enticements, including deep discounts, to attract consumers.

But some retailers are holding out as long as they can against heavy markdowns.

"We are not panicking," said Kimberly Reason, spokeswoman at Federated Department Stores' The Bon Marche, although she added that management is monitoring the situation carefully.