A combination of unemployment and the fear of war will keep this holiday shopping season soft, analysts say, despite some recently strong retail sales.
On Thursday, apparel retailers
Abercrombie & Fitch
reported an increase in October same-store sales and raised their earnings predictions.
also raised their forecasts.
Cold and Easy
Analysts were reluctant to put a rosy spin on the better-than-expected results in October, however. "The improvement at The Gap,
for example, was mainly a function of two things," said Donald Trott, a retail analyst at Jefferies. "The weather became colder and the comparisons were exceedingly easy."
In September, much weaker-than-expected sales prompted dire forecasts for the holidays. Now, with the crucial shopping season fast approaching -- when some retailers can make up to half of their annual sales -- consumers still have more than a list full of worries about the economy. Possibly making it worse is the fact that Thanksgiving comes unusually late this year, shortening the shopping season.
"The holiday season will not be a robust one, mostly because of the weak labor market and attendant lackluster wage growth," said John Lonski, an economist at Moody's Investor Service. He said no growth in employment could hurt apparel sales, which often are helped when people buy clothes for new jobs.
Lower interest rates -- the
cut them to 1.25% on Wednesday -- could encourage credit card purchases. But if people are out of a job, they won't bother.
Meanwhile, consumer confidence fell to a nine-year low in October amid signs of a weak economy. "The outlook for the holiday retail season is fairly bleak," Lynn Franco, director of the Conference Board's research center, said when after the release of the confidence index last month.
Many Americans also are worried about the threat of war in Iraq. On Thursday, President Bush said the United States would "move swiftly, with force" if necessary to get Baghdad to give up its weapons.
"The geopolitical situation has implications," said Mike Moran, an economist at Daiwa Securities.
The National Retail Federation, an industry trade group, predicts retail sales will increase 4% this holiday season -- from November through December -- to $209 billion from $201 billion last year.
Yet the NRF and others are forecasting that promotional activity will increase from year-ago levels.
"Every retailer is trying to focus on making a profit this season," said Ellen Tolley, a spokeswoman for the National Retail Federation. "But they realize that customers are interested in good prices."
Discounting may end up boosting sales at the expense of profit margins.
"What could really hurt the holiday shopping season are promotions," said Holly Gustafson, a retail analyst at Legg Mason. "That is what we are going to be watching over the next two months."