Dismal holiday sales expected

Advertiser Staff and News Services

Just several hours into shopping early Friday morning, Marivic and Charles Baitlon of Waipahu already were saddled with two bags of toys.

Despite the frenzy seen Friday at K-B Toys at Ala Moana Center when shoppers began their holiday buying at post-Thanksgiving sales, analysts expect a disappointing season for retail sales. Richard Ambo • The Honolulu Advertiser

Despite turning out on the traditional first day of the Christmas shopping season — along with thousands of other Hawai'i residents lured by discounts — the Baitlons said they were planning to spend only about the same as last year on holiday gifts.

"We figured we'd get some shopping in early while it's cheap," they said. "We figure, save money. It's been a hard year."

Faced with massive layoffs, volatility in the stock market and heightened economic and political uncertainties following the September attacks, many consumers such as the Baitlons are re-evaluating their priorities and paring back their holiday spending this season.

Trying to prevent this anticipated retrenchment, retailers began doing their best last week to try to get consumers to spend — running deeper promotions starting earlier than last year, allowing shoppers to haggle for prices and offering some unconventional enticements.

"Category discounts will not work this time around," said Philip H. Kowalczyk, vice president of Kurt Sal-

mon Associates, a retail consulting firm. "It has to be the must-have sharply priced items that create excitement."

The Washington-based National Retail Federation predicts that total holiday retail sales, excluding restaurant and auto sales, will rise in the range of 2.5 percent to 3 percent, to roughly $206 billion. That would make it the worst retail performance since 1990, when sales were basically unchanged.

Last holiday, retailers rang up a modest $201 billion, up 3.9 percent from 1999.

Hawai'i retailers and analysts are forecasting everything from flat to a slight drop in sales statewide this year.

A recent Conference Board survey of 5,000 consumers also isn't comforting, projecting that shoppers will be spending 6 percent less on holiday gifts this season.

Patrick Dunne, a marketing and retailing professor at Texas Tech University, predicts flat sales nationwide. He said that by the first week in December, retailers will acknowledge their predicament and cut prices again and use all the other tricks of the trade.

Dunne predicted that upscale stores will hang on by offering better service to affluent customers, and so will discounters that offer lower prices. Department stores that appeal to the masses will be hit hardest as their customers cut spending and gravitate toward the discounters, he said.

"Consumers are not going to keep their pocketbooks closed. They are in the malls, and they are not staying home," said Philip H. Kowalczyk, vice president of Kurt Salmon Associates, a retail consulting firm. "They are looking for opportunity to spend money, but the incentives have to be extra strong in order to offset the lack of confidence they have about the economy."

Last year, holiday sales of general merchandise, clothing, furniture, toys, electronics, music and office supplies totaled $201.01 billion, or 23 percent of annual sales, according to the National Retail Federation.

Analysts polled by the International Council of Shopping Centers said that retail sales this holiday season will rise 1.1 percent. None of those surveyed said the season would be "good," and 45 percent expect it to be "disappointing."

Online retailers are likely to compete for business just like their traditional counterparts.

"The deep discounts and promotions we saw in the offline world after retail sales dipped in the wake of Sept. 11 bled into online store frenzy," said Chuck Davis, CEO of BizRate.com, a comparison-shopping site. "What was shaping up as the first holiday without free shipping and discounts has on the contrary become a boon for shoppers."

Online sales are expected to range between $10 billion and $12 billion this holiday season, up perhaps 20 percent to 40 percent — only modest growth when compared with previous years. Overall, online sales remain a tiny smidgen of total U.S. consumer spending.

Surveys of online shoppers also show 2001 is the season to be thrifty, with few planning to spend much more than last year. Most of the growth is expected to come from the larger online audience, up about 15 percent over last season, according to Internet tracking firm Nielsen/NetRatings.

Predictions that terrorism fears would cause shoppers to avoid malls and instead go online have not materialized. But airport security hassles are drawing some holiday travelers to shop online to avoid lugging packages on board planes.

When the online shopping season got into the swing Friday, most analysts agreed there was only one meaningful factor.

"It's the economy, stupid," said Sean Kaldor, a vice president at Nielsen/NetRatings. "All retailers are being impacted by the same economic forces."