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5% Holiday Sales Rise Expected

A retail industry group expects the November-December total to be $457.4 billion. The increase would be smaller than last year's.

September 19, 2006|From the Associated Press

Holiday sales are expected to rise 5% this year -- less than last year's 6.1% increase -- as shoppers deal with higher energy costs, rising interest rates and a cooling housing market, the National Retail Federation said Tuesday.

The retail group estimated that total retail sales in November and December will be about $457.4 billion, compared with $435.6 billion in the same period last year. The figures include business from grocers, health and personal care stores, home improvement stores, stationers and florists but exclude auto dealers, gasoline stations and restaurants.

"Consumers have faced a number of economic challenges this year and have taken them in stride," said Rosalind Wells, chief economist for the retailing group. "Although sales will not be as robust as last year, retailers can still expect above-average holiday sales growth."

Shoppers have remained resilient throughout the year even amid rising gasoline prices, although the nation's merchants are experiencing a slight slowdown that started this summer. From January through June, retailers averaged an almost 4.1% gain in sales at stores opened at least a year, known as same-store sales, according to the International Council of Shopping Centers-UBS tally. Same-store sales are considered the best indicator of a retailer's health.

In July, the nation's merchants posted a 3.9% gain in same-store sales and a revised 3.8% increase in same-store sales in August, which was fueled by a solid back-to-school shopping season and a strong drugstore business.

But strong August sales figures from teen retailers such as American Eagle Outfitters Inc. and Abercrombie & Fitch Co. appeared to mask some signs of restraint in the monthly results at apparel merchants that cater to adults. That has left the outlook for the holiday season unclear.

J.C. Penney Co., which usually reports robust sales gains, reported disappointing August results, citing weak sales in big-ticket items such as furniture. The exceptions have been luxury stores such as Nieman Marcus Group Inc., whose customers continue to splurge on status handbags and apparel.

Michael Niemira, chief economist at the shopping center council, expects same-store sales to be up 3% for the November and December period. That compares with 3.5% in the year-earlier period.

In the toy world, sellers are counting on a number of electronic toys such as Web cameras and new versions of digital music players to excite children. Mattel Inc.'s Fisher-Price unit today will unveil at Toys R Us and other major toy sellers its Elmo TMX, an enhanced interactive version that has been seen only by a small group of toy executives. Such stealth marketing could help create some much-needed buzz, helping to jump-start the holiday season.

Overall, the good news is that retreating gas prices could offer some relief this holiday season to discounters such as Wal-Mart Stores Inc., whose core low-income consumers have pulled back on spending. But worries remain about the deteriorating housing market and how it will affect middle-income shoppers. Whether the housing market will have a soft landing or, as some fear, suffer a prolonged slump remains to be seen. But a big source of cash -- home-equity lending -- is drying up as higher interest rates and the leveling off of housing prices have made such financing less attractive.

Meanwhile, the latest government report said the job market bounced back in August, easing concerns that the slowing economy is in danger of fizzling out.

"The lower gasoline prices creates a halo effect for the holiday season," said Janet Hoffman, managing partner of the North American retail division of Accenture, a consulting firm. "The thing that concerns me overall is the sluggish housing market and the ripple effect" on categories such as home improvement.

She said the big question was whether consumers would be diverting their purchases to other areas such as electronics and apparel this holiday season.

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