Wary Christmas: Despite Strong Economy, Retailers Lack Cheer

Part of the dire outlook for many retailers comes from how they finished the quarter. While many posted strong sales in August and September, many of those same companies showed weak or troubling sales reports in October.

Retailers' wariness mirrors the outlook of consumers, noted Kurt Barnard, president of Retail Forecasting, a consulting firm.

"Consumers are cautious," Barnard said. This holiday season, "they won't go on buying binges or spending sprees. The first thing they're looking at is not the product, but the price tag."

Another factor likely to hold down consumer spending is what Richard Hastings, a retail sector analyst and chief economist for credit consulting firm Bernard Sands, dubbed a lagging "wealth deficit." Many Americans have paid down credit card and other debts only through other forms of borrowing, such as taking out cash through refinancing their houses or getting a rebate on buying a car, Hastings said. "The dependence on credit remains too high for my comfort level."

Additionally, consumers are shifting a growing portion of their holiday spending to gift cards, Hastings and other analysts note. While gift cards still represent a sale for retailers, companies aren't able to register those sales until the gift cards are spent by their recipients. Since that often doesn't happen until weeks after the end of the holiday season, the effect is that recognized holiday sales are depressed.

"This is a trend that will continue," Hastings said. "The holiday shopping season, regardless of how many holiday shopping days there are, will never be the spike in sales that it represented in the past."

Even if consumers do come out in full force this holiday season, they are likely to be disappointed by the selection, some analysts say. As was the case last year, there are few "must have" products on the shelves this year. That could make the season tough for toy retailers and apparel chains, both of which depend heavily on holiday sales.