A week before the US holiday shopping season starts, there is little Christmas cheer in the air for US stores, with the crashing economy leaving shoppers morose and only discounters eyeing escape from a looming debacle.
In a new report Standard & Poor's Ratings Services predicted "the most difficult holiday season in memory" for the retailers as American consumers rein in shopping amid rising layoffs and deeply troubled markets. In the best case, S&P says, retail sales for the November-December holiday season will be flat compared to last year's 255 billion dollars.
But a "more likely scenario," it said, is that sales will fall two percent, to just 250 billion dollars. "This is very troublesome when considering that for the past 10 years, holiday sales have increased at an average of 4.4 percent per year, and that the worst year in that time frame was 2002, which saw sales increase a mere one percent," it said.
"Consumers have significantly pulled back spending due to the confluence of concerns about employment, the economy, declining housing prices, and high energy prices. Turmoil in the financial markets and heavy debt burdens have also inhibited consumers from opening their wallets."
In a separate survey by consultant BDO Seidman, chief marketing officers from leading US retailers forecast an average drop of 2.7 percent in same-store sales over the year-end holiday season, and a total sales decline of 2.8 percent. Three-quarters said that they were more cautious about inventory ahead of Christmas, which falls on December 25, and 88 percent said they were planning more discounts and promotions than before, compared to 73 percent last year.
"The pessimism among chief marketing officers this year is unprecedented and highly attributed to the recent turmoil in the financial markets," said Al Ferrara, a BDO Seidman retail specialist. The gloom could be seen in the shocking plunge reported Tuesday in the consumer confidence index by the Conference Board, a business research firm.
In October the index sank to 38.0, down from 61.4 in September. Most analysts had expected a more modest decline to 52.0. "The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers' confidence," said Lynn Franco, the Conference Board's chief economist. "This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season," she said.
If there was any light in the picture, it was for bargain-basement discounters, like the world's top retailer Wal-Mart. Without making any forecasts, Wal-Mart chief executive Lee Scott said Monday that he expects "we will in fact have a Christmas."
"The most important thing you could have done for this holiday season is to position yourself as a company that saves people money so that they can live better," he said. He said that the recent fall in gasoline prices has given him hope for the season. "For our customers, 20 percent of whom do not have a bank, this is an extraordinary change in out-of-pocket expenses."
S&P said the 22 billion dollar toys industry is facing another tough year, after a 2.0 percent fall in sales in 2007 from 2006. "Although there is still a chance for some improvement this year, Wal-Mart has already started to slash prices, and competitors have been following," S&P said. The electronics industry is likewise looking at "considerably weaker sales" this year, it said, with sales falling 2.0 to 2.5 percent.
On the other hand, S&P said, online retailers will enjoy a 25 percent increase in business overall this year. But with only three percent of total US retail sales, the effect will not be great on the Christmas season.