Meet the Street: The Big Picture for the Holiday Shopping Season

Irwin Cohen, Managing Director, Deloitte & Touche

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"Bad" is not how Irwin Cohen would describe the upcoming holiday season for the nation's retailers.

Cohen, global managing director for Deloitte & Touche's consumer business practice, prefers the word "challenging." He is more bullish than most, and says shopkeepers are well-prepared with trim inventories and promotions to woo shoppers this holiday season, which officially begins today. Indeed, the economy was shaky long before Sept. 11, he notes.

As Americans prepared to bolt the office for the Thanksgiving holiday, Cohen spoke with TheStreet.com on his outlook for the holidays and when he expects a turnaround.

TSC: This week is the official start of the holiday shopping season. How bad will it be?

Cohen: I guess "bad" is not a term I would use. I think it's going to be a "challenging" holiday season. Last year GAF sales -- general merchandise, apparel and home furnishing -- were up about 4%. We're looking at that similar measure for November and December of this year to be up in the zero to 1% range.

It's going to be a challenge, but another way to look at it -- kind of a glass-half-empty, glass-half-full way -- is that given everything that is going on and has gone on in this country, to even feel that sales will be up is a pretty positive statement. I'm not sure the retailers would look at it that way, but it could be worse.

TSC: What are retailers doing differently this year to attract shoppers?

Cohen: I think what we are seeing and what we are going to see is a lot of price promotions. Varying types of things to get customers in the store, such as frequent-buyer programs and two-for-ones -- all kinds of promotional activities to get the customer in the store to shop.

TSC: How will this affect companies' bottom lines? Will we see margins crunched or will they make up for it in volume?

Cohen: We have to remember that last year was a very promotional Christmas. Of course, 4% growth given what we had been through in the '90s was a fairly low percentage in terms of gains. Last Christmas was not a barn-burner, either. There was an awful lot of promotional activity last year. Be that as it may, I still think you are going to see more promotional activity as retailers try to entice customers in.

Another side to that is I think retailers are not going into this holiday season unprepared. They certainly realize the economic issues and some of the other issues swirling around this Christmas, so I think they're going to be fairly tight in terms of inventory purchases.

TSC: What is the sentiment among your clients? How worried are they?

Cohen: I don't think "worried" is the operative word. I think people are going into this holiday with their eyes open. This is always a very optimistic industry that always hopes things will be better than they thought. But this is not sneaking up on anybody. People are preparing for it as best they can. They are cutting costs, they are cutting down on extra help. People are going into this prepared.

TSC: How much of the downturn is due to actual economic factors, such as fear of layoffs and high debt, and how much is due to a change in sentiment toward materialism in light of recent events?

Cohen: I think you really have two separate issues. It is really hard to quantify. There is no question that a lot of consumer sentiment and consumer confidence is being driven by layoffs and job uncertainty. We have always found that there are two basic issues that drive consumer confidence and consumer spending. One is job security. The second is increases in real personal income. Both of those are challenged very much. So I think even had you not had the terrorist activities and the security issues, the economic issues would be very significant.

The other side of it -- the terrorist activities, the security issues -- we've certainly seen a growth in sentiment in terms of what people will say is really important this holiday season, whether it's cocooning, spending more money on the home, staying at home or connecting with friends and family. And perhaps a little downturn in materialism.

On the other hand, as we've seen in the auto sector, give the consumer a good deal and they will knock the socks off the ball. We saw a 25% increase in auto purchases last month, driven by incentives, whether it's 0% interest rates or other types of incentives that auto dealers are offering. So there is still a consumer out there who is willing to spend and will recognize a bargain.

TSC: Do think some of the money that would have been spent on travel will trickle down to gift purchases?

Cohen: Yes, I do. That is one of the sleepers on the positive side. As people have cut back on some of the holiday travel or vacation travel because of these issues, that discretionary spending will be targeted into malls and retailers.

TSC: What is your prediction for a turnaround? When do you see things getting better?

Cohen: I think you've got to look at this government. I am very buoyed by some of the things the government is trying to do, with the tax cut, with the other incentives, with the interest rate cuts. One of the things I've said in a number of talks I've given is we're not Japan. This is a consuming country, I don't think we're going to pull in our horns and save and change our habits. I look for a rebound toward the second half of next year.

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