Consensus: momentum bodes well for 4Q - Retail sales growth, which began to stir in spring, will continue gaining through beginning of next year

DSN Retailing Today, Oct 27, 2003 by Mike Duff

NEW YORK -- Although some extraordinary event might throw a monkey wrench into the works, right now converging economic and consumer trends seem to favor retail sales moving merrily along through the holidays and into 2004. A broadening consensus among analysts and economists indicates that retail sales growth, which began to stir in the spring, will continue gaining through the beginning of next year.

September sales figures released earlier this month seem to have confirmed the conclusions emerging from that consensus.

Carl Steidtmann, chief economist for Deloitte Research, said the trends underlying the September sales figures provide a basis for optimism as 2003 winds around to 2004. "If you look at what's driving the sales growth that occurred in August and September, it really was a combination of the tax cut, mortgage refinancing stabilization and maybe a little improvement in the labor market," he said.

After retailers released September financials, the National Retail Federation reiterated its prediction that holiday sales will rise 5.7% above last year's totals. NRF chief economist Rosalind Wells said, "The momentum apparent in the economy and in retail sales will lead to a very happy holiday for the nation's retailers."

Not alone, NRF cited cool fall weather, attractive fashions and pent-up demand in the strong September numbers. Despite the disappointments, including Abercrombie & Fitch, clothing and clothing accessories stores posted 10% growth in September, according to NRF. Health and personal care stores gained 8.7%, while building material and garden equipment and supplies dealers advanced by 15.3%. All September figures are unadjusted year-over-year but adjusted month-to-month. Major home and crafts retailers also have seen strength entering fall after some weakness in summer, said Joan Storms, a Wedbush Morgan analyst. Going forward, she remains concerned about employment numbers and said the positive effects of the tax rebate will wane. Yet, Storms said, events in late September, including a cold snap affecting much of the United States and something of" an apparel spending spree associated with the tax rebate, may add actually help home goods sales in October. "September may have to borrow some apparel sales from October with the spurt of cold weather," she said. "Given that and the consumer not being as focused on the tax rebate, things could shift purchases and bode well for home."

Dr. Stephen Hoch, a Wharton School marketing professor, said one factor that has given him a positive outlook for year-end 2003 and early 2004 is broad-based and consistent consumer spending. Hoch said he expects retailers to post good numbers for the holidays in part because of a balance of two essential factors. "I think something that is going to be interesting in the holiday season is retailers are going to have to balance off greed versus fear," he said. "There are reasons to be optimistic, but they recognize that there is potential for things not to get as good as they hope." As a result, he said, retailers would sell aggressively but keep tight control over inventories, helping to ensure that sales numbers will improve profitably.

Ironically, a danger is that strong business in the early autumn might unsettle that balance, Hoch warned, if retailers bet too heavily on a consumer shopping frenzy in the holiday buying period.

Hoch said stabilization in new unemployment claims figures--and Wall Street's typically positive reactions to better job numbers--should remove a reason for consumers to sit on their wallets, although he said such data is likely to have more of a psychological affect than any material impact.

Other factors that should help lift sales are more specific and less macroeconomic in character. Deborah Weinswig, a Smith Barney analyst, said additional advertising planned by several major retailers should provide some sales heft.

"JCPenney has committed to a heavier total advertising schedule for the back half of 2003 year-over-year, which will impact reach and frequency levels during holiday 2003," she said. "Kohl's will be running branded national TV advertising for the first time during a holiday season this year. The company has done spot cable in the past, but just launched TV on the national level this past March. Federated, in conjunction with its Macy's national brand expansion strategy, will be expanding/increasing its Macy's electronic advertising over the next several months."

The expansion of the holiday shopping season should make the New Year a happy time for retailers. "If anything, January sales will be quite strong. One thing we're seeing is a significant increase in gift certificate and gift card giving, and we're seeing most of the sales after the holidays," said Steidtmann. The growth of easily purchased gift cards and certificates has evolved into "a structural shift into after holidays that should help spending."

One potential bump in the road to a happy holiday is approaching. Tougher comparisons in October may provoke what might be called the Chicken Little phenomenon, when a negative-seeming statistic causes pundits and investors to determine that the Christmas season is going to flop, with the predictable effects resulting.