Belated Holiday Shoppers Likely to Get Lump of Coal

Over the last several years, retailers have taught holiday shoppers that the best deals come to those who wait to buy. This Christmas, however, consumers may learn a new axiom: The early bird gets the only holiday gifts worth having.

Financial analysts are predicting that retailers will have their merriest Christmas in years in 2003, with lean inventories and steadily increasing demand all but ensuring tidy profits.

For shoppers, on the other hand, fewer goods mean fewer bargains, not as many last-minute sales and a whole lot less selection as the season wears on.

“This is the year when consumers want to be in the stores early on in the season rather than later,” said Anthony Liuzzo, a professor of business and economics at Wilkes University in Wilkes-Barre, Pa., who estimates a 4% gain in overall retail sales this holiday. “The retailers are in an excellent position.”

This year’s potential good fortunes would come from last year’s bad decisions. Hoping for economic recovery during the second half of 2002, many retailers planned big, betting that well-stocked shelves would mean a bonanza when shoppers unleashed pent-up demand.

Growth in inventories outpaced sales last year for the first time since his firm has tracked such numbers, said Todd Slater, a retail analyst with Lazard in New York.

But neither the recovery -- nor the demand -- materialized. Even with prices slashed 50% to 70% before Christmas, shoppers nervous about the economy and global politics held tight to their wallets.

The nation’s largest chain stores posted a scant 1% sales gain in stores open at least a year last December, according to the Bank of Tokyo-Mitsubishi -- the smallest rise in more than three decades. Combined with flat same-store sales in November, holiday sales rose just 0.5%.

The fallout continued to plague sellers, particularly apparel retailers, into the first half of 2003.

“No matter how much you mark it down, no one is going to pay too much for an angora sweater in June,” Slater said. “The science is to maximize sales at all times by owning only the perfect amount of goods that people want to buy. That’s not possible, which means that retail is more of an art than a science.”

As retailers worked off the excess this year, they pared their ordering to avoid a repeat of last year’s debacle. Even department stores, known for overbuying in hopes that large selection will differentiate them from specialty store competitors, have found themselves on the lean side going into the fourth quarter.

At the same time, the economy looks as if it has started to rebound and consumers have begun heading back to the stores, said Carl Steidtmann, the chief economist for Deloitte Research.

In August, U.S. personal income rose by 0.2% from July, the Commerce Department said. Personal spending grew a healthy 0.8%.

Same-store sales in August rose 6.1% overall, according to U.S. Bancorp Piper Jaffray, versus a 2.9% gain a year ago. The firm predicts that a report on September sales in stores open at least a year, which will be released Thursday, will show a gain of 4.1% compared with a year ago.

Tax cuts, a continuation of low interest rates and the rebounding stock market are fueling consumer demand, Steidtmann said. For the holiday season, he is predicting a 6.5% to 7% retail sales gain.

“As retailers and their suppliers look to the holiday season, they have good reason to be optimistic,” Steidtmann said in a report titled, “Coming Soon: The Millennium’s Best Holiday Season.” “Enhanced sales growth coupled with tight inventory and cost control will trigger one of the better profit performances by consumer businesses in recent memory.”

Steidtmann forecast that retail profits would gain 20% or more over the next year.

Barring a sharp economic reversal or new uncertainty on the geopolitical stage, about the only downside most retailers face is missed opportunity, Liuzzo said. The tight rein on merchandise could mean losing market share to competitors if supply runs out before consumers are finished spending, he cautioned.

Lazard’s Slater, however, said if a store lost customers to a competitor this season, it wouldn’t be because it had too little merchandise, it would be from having the wrong kind.

“Retailers almost never suffer from too little inventory, only from too much,” Slater said. “Even though inventory levels are low, have you ever walked into a department store -- even in the depths of a recession -- and seen anything but jammed fixtures? It’s hardly noticeable by the consumer.”

Except, he added, if that consumer were hoping for a sale.