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Holiday sales are foreseen as so-so

A major trade group's prediction of 4% growth would be the lowest rate in five years.

September 20, 2007|From the Associated Press

NEW YORK — Holiday sales are expected to grow at the slowest pace in five years as shoppers worry about jobs, tight credit and slumping home prices, according to a forecast from the world's largest retail trade group.

That could mean lower prices and big pre-Thanksgiving sales blitzes as merchants compete for a piece of the holiday budget.

The Washington-based National Retail Federation predicted that total holiday sales would be up 4.0% for the combined November and December period -- the slowest growth since 2002, which saw a 1.3% rise.

Holiday sales rose 4.6% in 2006 and growth has averaged 4.8% over the last decade.

The trade group's total retail sales figures exclude business from auto dealers, gas stations and restaurants. The results also exclude online sales.

"I think consumers will be cautious," said Rosalind Wells, chief economist at the federation. "The average person will be a little more restrained. It's not to say they will stop buying Christmas gifts, but the spending will be more practical."

A big issue, according to Wells, is the job market, which in August showed its first drop in job creation in four years.

"Everyone knows the housing market is terrible. The big issue will become employment and income," she added.

Amid such economic challenges, Wells said, stores could be even more aggressive about price cutting than last year.

Chris Donnelly, a partner in the retail practice at the consulting group Accenture, said a key question was whether many stores would offer deep price cuts traditionally reserved for the Thanksgiving weekend before the holiday kickoff.

"The Thanksgiving holiday season is a bit of a firewall. The question is, will [stores] jump that firewall?" he said.

Wal-Mart Stores Inc. stood out last year by offering big price reductions on toys and then on electronics to lure shoppers starting in mid-October.

Consumer spending growth has been slowing since the beginning of the year as shoppers have been hit with higher gasoline and food prices and a slowing housing market.

Back-to-school sales were solid, but escalating problems last month in the credit market, rising defaults and financial market turmoil raised more concerns about consumer spending.

Though the Federal Reserve's decision Tuesday to cut its benchmark interest rate by half a point was applauded by Wall Street, many economists say it won't do much to help spending this holiday season.

The rate reduction means consumers could find lower rates on loans for big purchases such as cars, but it won't be a big help for families struggling with a weaker job market or slumping home prices.

"It will soften the downside, and that is the key here. You want some sort of underpinning of the economy," said Michael P. Niemira, chief economist at the International Council of Shopping Centers. "But it cannot address the housing problem directly other than pouring in some liquidity."

Niemira and others say luxury stores such as Saks Fifth Avenue should continue to do well as their well-heeled customers keep splurging on status handbags and shoes.

Electronics also should be a bright spot, underscored by a bullish forecast from Best Buy Co., the nation's largest consumer electronics retailer.

But the apparel business at mall-based stores remains a mixed bag, Niemira said. One thing hurting sales is a lack of obvious must-haves. This holiday season, retailers will be resurrecting cashmere and focusing on metallic and gold accents.

Discounters such as Wal-Mart might see higher customer traffic if shoppers trade down to lower-price stores to save money. But at the same time, discounters will be hurt by the economic problems of their core shoppers.

Besides other worries, consumer concerns about safety could damp holiday sales in the wake of a slew of recalls of Chinese-made products.

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