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Forecasters see gains in retail sales over the holidays, but the gains are expected to be less than in years past. Online sales will fare better than sales in stores, according to prognosticators.

The National Retail Federation (NRF) projects that sales will rise 2.2 percent this season over last, to reach $470.4 billion. This gain would fall well below the 10 year average of 4.4 percent holiday sales growth and would represent the slowest growth since 2002, when holiday sales rose 1.3 percent.

"Current financial pressures and a lack of confidence in the economy will force shoppers to be very conservative with their holiday spending," said NRF chief economist, Rosalind Wells. "We expect consumers to be frugal this season and less willing to splurge on discretionary items."

NRF and others point to a number of economic indicators impacting the holiday retail climate. A struggling housing market and rising unemployment, accompanied by meager income gains, will continue to hamper the consumer throughout the season.

With the current financial industry crises continuing to chip away at consumer confidence, NRF does not foresee an economic turnaround until the second half of next year. Its prediction of holiday sales is even more optimistic than some others. At 1.5 percent growth over a year earlier, holiday sales this year will be the weakest since 1991, when sales grew 1.2 percent, according to TNS Retail Forward. By comparison, sales last year grew 2.7 percent over the year before, according to TNS.

Online retail sales, however, will grow nine percent, TNS predicts. That is low by industry standards, but a lot stronger than total sales.

"The letup in online shopping reflects the spreading impact of the economic downturn since the last holiday season, particularly among upper income shoppers," said Frank Badillo, senior economist for TNS Retail Forward. "These shoppers, who are more likely to shop online, have turned increasingly value focused in recent months, as they have felt worse off with regard to investments, home values and other economic measures."

TNS Retail Forward said mass retailers will benefit from a shift among shoppers toward value formats, and the impact of higher food prices. The researchers forecast 5.6 percent growth in this retail category, nearly a full percentage point stronger than a year ago. The same study predicts supercenters and warehouse clubs will remain among the best retail performers, while discount department stores will be the laggards. Traditional department stores are also expected to struggle.

Among the sufferers will be apparel and accessory retailers, as the faltering economy forces consumers to cut back on such spending. TNS expects sales at those stores to drop by 1.3 percent compared to a year ago. Home goods, especially furniture stores, will probably see a decline of 1.5 percent in sales, compared to last year.

One bright spot is consumer electronics stores, where TNS Retail Forward is forecasting growth of four percent, as consumers prepare for the conversion to digital TV.

"The holiday sales forecast represents a weakening from modest third quarter growth as the boost from tax rebates runs out," Badillo said. "The benefit from a letup in gasoline prices will be overwhelmed by the impact of rising unemployment, tighter credit and other hardships on households."

NRF and others predict there will be aggressive discounting and pre Thanksgiving sales blitzes, as stores try to pry dollars from frugal shoppers. Merchants have also scaled back holiday inventories and seasonal sales staff from a year ago.

The challenges are compounded by a holiday season that has five fewer days between Thanksgiving and Christmas Day than in 2007, which could make consumers delay their buying. "You don't have a good picture," said NRF's Wells.

While Deloitte LLP also forecasts the weakest holiday growth since 1991, it projects higher growth than NRF and TNS. Deloitte researchers expect total holiday sales, excluding motor vehicles and gasoline, but including online sales, to rise between 2.5 percent and three percent in the November through January period. This is less than last year's 3.4 percent gain, according to Deloitte.

Article ID: 786