Holiday '96: merry … but not very - Christmas retail sales forecast

Discount Store News, Nov 4, 1996 by Robert Scally

NATIONWIDE DSN REPORT -- Election-year optimism combined with a generally healthy economy and soaring consumer confidence could come to the rescue of Christmas retail sales for 1996.

But this rosy scenario comes with the caveat that there's still a good chance that despite all the good news, consumers still will not be in a spending mood, retail industry analysts said.

First the good news: There are lots of reasons to be optimistic about Christmas retail sales this year, according to industry analysts and market research data.

* Consumer confidence and expectations as measured by the New York-based Conference Board business research organization have been rising steadily for the past year, with both measures at 7-year highs at the end of September, according to Lynn Franco, associate director of the Consumer Research Center at the Conference Board.

* Retailers could reap the benefit of increased economic growth that traditionally takes place during election years, according to the Retail Sales Outlook newsletter from the National Retail Federation.

* Retailers generally had a better Back-to-School season last year, and improved sales around Labor Day usually bode well for the Christmas season to follow, according to George Rosenbaum, president of Leo J. Shapiro and Associates, a leading market research firm.

* Interest rates have remained low. The Federal Reserve Board declined to raise interest rates prior to the election, leaving little justification for continued muted spending by consumers, according to a recent report from Salomon Borthers.

The brokerage firm of Alex. Brown and Sons' Same Store 100 monitor Holiday is forecasting that same-store sales for retailers overall will increase 3% to 4% for November and December.

Who wins the election will not be as important as the fact that the election itself will be over, and people may be feeling optimistic and in a mood to spend, Rosenbaum said. If consumers are buoyed with optimism and decide to loosen the grip on their wallets. Christmas sales could rise on the upside by as much as 5%.

"The election, regardless of who wins, is good for Christmas business," he said.

Now for the caveat. Analysts are saying that while there are abundant reasons to be confident, there are also numerous reasons for retailers to exercise extreme caution.

But if retailers aren't seeing a noticeable post-election bounce by Thanksgiving, and consumers remain tight-fisted and highly bargain-conscious, the season could turn ugly with an orgy of price reductions, Rosenbaum said.

Shapiro's monthly survey of consumer spending attitudes doesn't paint a rosy retail picture for Christmas 1996, Rosenbaum said.

"The outlook is poorer than it was a year ago, and it's gotten worse in the time from August to October," he said.

The downside could be a Christmas that is much worse for retailers than last year, down as much as 3% from 1995, Rosenbaum said. Retailers will be lucky to have a Christmas that is flat with last year, with maybe a slight gain, he added.

"This negative outlook toward Christmas is not occurring because people are feeling more pinched than last year. It's occurring despite the fact they are feeling more prosperous," Rosenbaum said.

Several reports point out that many consumers are still carrying heavy debt loads.

Rosenbaum said that the real issue is whether Americans have permanently downscaled Christmas as their own buying power has stagnated or declined.

"We've been seeing signs of this for the last two years, that people are trying to manage their budgets by cutting back on Christmas," Rosenbaum said. "So far this seems almost like an acid test because in the past two years we've seen it--because people we're feeling pinched and now we're seeing it despite the fact that people have seen an improvement in their financial situations."

Optimism abounds among retail industry analysts, but that optimism is by no means boundless.

Britt Beemer, president of North American Research, also thinks that the election will have some influence on retail spending, Christmas and the outlook of discounters, but doesn't think it will have an extremely significant impact. Beemer said that he thinks consumers will keep as much money in their pockets as they can, buying less and searching for the best bargains possible.

Beemer said that he also has noticed the trend toward the downscaling of Christmas spending in his frequent consumer surveys.

"Last year, for the first time in 15 years, the consumer changed their favorite price point for a gift," Beemer said. "For 15 years that price was $21 to $25. Last year it dropped to $16 to $20."

While Beemer expected the drop to be temporary it was not. This year he is expecting the favorite price point for a Christmas gift to remain at $16 to $20.

Consumers are also waiting longer to replace items and are increasingly unlikely to make purchases of more than $500, Beemer said.

Discount stores stand to be the big winners in this shift in consumer attitudes, according to a report published by the consulting firm of Ernst & Young.