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Retails Sales Outlook: Good, Not Great
By Bill Catlin
November 24, 2000
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How big is your holiday gift budget? A retail industry group expects consumers to spend about six-percent more than last year. But the U.S. economy and retail sales are slowing.

The National Retail Federation projects a healthy 6-percent increase in holiday sales compared to last year.
TWO RAFTER-TICKLING artificial Christmas trees dominate the rotunda of the Mall of America this holiday season. On a recent weekday at the nation's biggest mall, the bottom-third of one tree was a bare-metal grid, still awaiting the greenery that would complete the effect. Retailers are optimistic that consumers will spread around plenty of their hard-earned greenery this holiday season, despite conflicting economic signs.

On the positive side, unemployment is lower, consumer spending and personal income are up, and an early Thanksgiving means a long shopping season.

Jeff Schnoebelen and his family came up from Chicago for three days of shopping and relaxing at the mega-mall. His holiday spending plans would hearten any retailer. "Actually, we've got some money saved this year, so with my son 2 now, we'll probably go all out, and enjoy it," he says.

Not everyone's feeling flush though. Interest rates, energy prices, housing costs and credit-card debt are all up. Stocks are down, and retail sales stalled in October. A year ago consumer confidence was soaring. It's still high, but coming down.

Consumers like Roxy Vermeer are more nervous about going all out on gifts.

"I think we're not going to spend as much as we normally do," she predicts. "More conservative, more things that they need, rather than want. I work for a company that has retail stores, and they're not shopping as early as they normally do, and you kind of look at that and think, 'Well, what do they know?'" she says.

The National Retail Federation projects a healthy 6-percent increase in holiday sales compared to last year. But retail industry analyst Brent Rystrom of U.S. Bancorp Piper Jaffray thinks anything beyond 3 to 5 percent is too optimistic.

"Last year was a year in which most retailers could do no wrong," he says. "This is a year in which a lot of retailers are going to be facing difficult situations, they're going to be facing possibly declining traffic and they're going to be facing a consumer that seems to be a little beleagured right now."

Source: The Conference Board
A number of major national retailers have seen profits erode as competition or sluggish sales force price cuts. Best Buy, the Twin Cities-based consumer electronics giant, saw its stock price plunge earlier this month after issuing a warning about profits. Company president Brad Anderson says the pressure on prices and profits will continue through the holiday season.

" (The falling prices are) good for the consumer, but not necessarily good for our shareholders for a period of time. And I think that's part of what you see with so many companies missing their earnings estimates in these last few months. There's been a slowing of this incredible demand that we've experienced over the course of quite a few years consecutively," says Anderson.

Even so, Best Buy is expected to surf the steady demand for digital products, and consumer caution augurs well for discounters like Target, the other Twin Cities-based retail giant.

Many traditional retailers probably welcome one change from last year. The e-commerce shakeout and growing pile of dot-compost has reduced the perceived threat of e-tailers.

"A year ago, we had shareholders that were angry because our site wasn't up, and this year we have shareholders who are angry because we're spending as much money as we're spending on the site," says Best Buy's Anderson.

Despite the slowing economy, stores are struggling to hire and keep enough employees.

"Employees will start working for a particular store, buy using the store discount they have as employees, buy the stuff that they want, and then when they're done with everything they want in that store, they go down to the next store and use the discount in that store. So that's one of the challenges that retailers face," says Annette Henkel of the Minnesota Retailers Association.

The many other challenges are not prompting predictions of a sea of red ink. Analysts say retailers have adjusted their inventories and cost structures to protect profit levels. But it's an environment that favors strong retailers at the expense of weaker firms.