Slowest Sales in 5 Years Seen for Holiday

The nation’s top retail trade group said Tuesday that the upcoming holiday shopping season would be the slowest in five years, with sales increasing a scant 4% as consumers worry about war with Iraq and the slow pace of economic recovery at home.

The National Retail Federation predicted the November-December sales period would post the smallest increase since 1997. Sales also grew 4% that year as the nation emerged from an economic slowdown.

By comparison, sales last year grew 5.6% in November and December, even after the Sept. 11 terrorist attacks threatened to dampen demand.

The outlook could be even darker in California. A separate report, conducted for the NRF by BIGresearch, said Californians probably will spend less this Christmas than shoppers nationwide.

And overall, consumers here were more pessimistic than Americans as a whole on whether the economy would rebound this year.

The preliminary report did not say why Californians had a gloomier outlook, although one retail analyst suggested the state amplifies the national trend.

“In California I think that we’re suffering the same type of malaise as the rest of the country--too much bad corporate news, too much uncertainty in the stock market and unemployment numbers that aren’t encouraging,” said Richard Giss, a retail analyst with Deloitte & Touche in Los Angeles.

Nationwide, 62.4% of consumers said they plan to spend the same this holiday season as they did last year, with 29.3% saying they planned to spend less and 8.3% planning to spend more, BIGresearch found.

“This year, I think we’re seeing consumers be very, very cautious and frankly appropriately so,” NRF President Tracy Mullin said. “We’re in a very volatile economy and a very volatile global situation, and consumers are nervous. That’s a reasonable way for consumers to approach the holiday.”

In California, consumers’ outlook is slightly more conservative, with 60.6% of those surveyed saying they planned to spend the same as they did last Christmas season, 31.7% anticipating spending less and 7.7% expecting to spend more than they did a year ago.

The Standard & Poor’s index of retail stocks was down 1.3% on Tuesday.

Retailing is a major component of the state and U.S. economy, accounting for two-thirds of the gross domestic product. Of California’s 14.6 million nonfarm workers, 2.6 million, or about 18%, work in retailing.

The success of the holiday shopping season also is a big factor for California’s apparel makers, such as Levi Strauss & Co. and Quiksilver Inc.

“You cannot have a big holiday season without apparel sales, because it’s the No. 1 item on most people’s holiday list,” Giss said. “If you have difficulty in apparel, that has a trickle-down effect in our local economy because we have a huge apparel manufacturing base here and we’re a big apparel market.”

For the most part, predicting retail sales is a notoriously dicey proposition, because changes in world events, national politics or macro economic data can affect consumer psychology. Despite last year’s gloomy holiday predictions, for example, consumers shopped to make themselves feel better and to brighten their homes as spending time with family and friends gained importance.

Although the NRF, as a retail trade group, is usually optimistic in its outlook, it also has tended to be on the mark in terms of predicting total holiday retail sales, in line with government figures of sales of general retail goods.

Forecasting consumer spending has become even more important over the last 18 months, as retail buying emerged as one of the few economic bright spots softening the blow of recession.

Some analysts worry that consumer resilience might be waning as housing starts slow and employment numbers continue to falter.

“Whereas in the prior couple of years, consumers spent liberally--surprisingly so in 2001--for holiday 2002, retailers will be fighting for consumers’ dollars and working to spur the kind of excitement that will get consumers into their stores,” said Matt Fassler, a retail analyst with Goldman Sachs in New York.

Still, some analysts note that because the NRF bases its forecast on total retail sales, which most closely mirror government data, Tuesday’s report may underestimate holiday sales. Most retail analysts base their estimates on same-store sales, which exclude new and closed stores and so more closely examine consumer demand for goods.

By that estimate, Michael Niemira of Bank of Tokyo-Mitsubishi says he sees sales improving from last year, with a same-store sales gain of about 4% this holiday season.

Because same-store sales exclude new stores, which can skew the sales figures higher, a 4% sales gain would be considered a solid holiday season.

“This is not going to be a bad holiday season,” the NRF’s Mullin said.

“It’s not going to be a blockbuster, it’s not going to be spectacular, but it’s going to be a good solid holiday season.”