Holiday forecast: moderate gains: analysts predict more cheer than last year

Discount Store News, Nov 3, 1997 by Dawn Wilensky

NATIONWIDE DSN REPORT -- The

approaching holiday

season should prove positive

for retailers as a strong economy

and record-high consumer

confidence levels

drive shoppers into stores.

Sales gains are projected

to range from a low of 3% to

a high of 7% industrywide.

This is particularly good

news to retailers and suppliers

who depend on strong

fourth quarter sales for the

bulk of their yearly profits.

"We are seeing high consumer

confidence, almost full

employment and same store

sales increases of between 3%

to 4% over last year," said

Robin Lanier, senior vice

president of industry affairs

for the International Mass

Retail Association. "Given

these factors, I believe our

members will expect those

same gains for the fourth

quarter."

The National Retail Federation

feels more positive about

the holiday season, with sales

of general merchandise,

apparel, and furniture and

home furnishings stores

recording a gain of 7% for the

final quarter. For all of 1997,

the NRF is predicting GAF

increases of 6% with inflation

running less than 1%.

Merrill Lynch has predicted

a seasonal gain of 5.6%

for general merchandise

compared to 4.8% last year.

At the heart of these forecasts

is consumer attitude.

The overall level of consumer

confidence continues to hover

around levels not experienced

since the summer of 1969,

according to Lynn Franco,

associate director of the

Consumer Research Center

at the Conference Board.

The reason: Consumers are

optimistic about their personal

income and job security, and

spent freely during the first

two quarters of 1997. This was

tempered somewhat in the

third quarter when extremely

warm weather came into play,

particularly in September, and

purse strings were tightened

and spending was more

conservative. The year is expected

to end on a high note with

same store sales gains of

between 4% to 6%.

In fact, consumer spending

is expected to rise 6%

to $1,229 during the holiday

season, with an average of

$875 being spent on gifts and

the balance on holiday entertaining,

decorations and travel,

according to the 1997

American Express Retail

Index on holiday shopping.

Of those consumers polled

by American Express, 65%

named discount stores as a

place they will shop for holiday

gifts outpaced only by department

stores, with 80% of consumers

naming it for the third

year in a row.

The fly in the ointment,

however, might be the high

amount of consumer debt

resulting from increased borrowing

on credit cards; stock

market fluctuations; and the

effects of El Nino, which is

expected to cause a milder-than-average

winter and

tremendous seasonal variations

across the country. Both

of these scenarios could

potentially blow away

improved profitability for

retailers this year.

The good news is that

retailers may escape the eye

of the storm this Christmas as

the impact of El Nino should

not strike until January.

This is welcome news to

retail analysts and consultants

who believe that the positive

economic conditions, low employment

and general optimism

will result in "moderate"

gains compared with last year.

Real merchandise sales will

grow 5.6% above the historical

average of 4.0%, according to

Daniel Barry, managing director

and senior retail analyst,

Merrill Lynch & Co.

Price pressures continue to

weigh down retailers despite

the economic recovery experienced

over the past seven

years. Consumers are still

deal-conscious and look for

value in every purchase.

According to Roper Starch

Worldwide, 57% of consumers

indicated that they always

buy things on sale. Further,

70% of consumers agreed that

they get very excited when

they get a good deal.

Bulging inventories once

popular during the fourth

quarter have been slimmed

throughout all channels of distribution

as retailers try to

avoid heavy markdowns before

and after the holiday season.

Kmart is treading very conservatively

this holiday season

and is looking for specific

inventories to drive sales into

the mid-single digits, according

to Bob Burton, vice president

of investor relations.

Some hot buttons include: its

toy catalog launched Nov. 1,

the Martha Stewart Everyday

line, its new Sesame

Street children's apparel program

and a more focused

effort on do-it-yourself with a

solid offering in the BenchTop

area "that will be a surprise

to many," Burton said.

Keeping forecasts moderate is

Kmart's apparel program,

which Burton characterized

as "a work in progress."

Toys are projected to have

an "exceptional year in sales

and profits," according to Peter

Caruso, first vice president at

Merrill Lynch. He noted that a

healthier economy usually

leads to spending more money

on children as does a high

divorce rate, wealthier grandparents

and an influx on computers

in the home.

Caruso predicted that WalMart

will be the big winner

this year with an estimated

15% gain in toy sales. Caruso

further noted that Target,

Toys "R" Us and Kay-Bee will

see gains of about 10%, while

Kmart's gain in toys should

be up about 4%, even with its

new toy catalog, which was

set to launch Nov. 1.

Michael Glazer, president

of Consolidated Stores and

chairman of Kay-Bee, said he

is "very excited and bullish

about the holiday season,"

noting that the company goal

iS always a double-digit sales