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Despite a generally tough retail environment, some merchandisers are expected to thrive this Christmas, grabbing market share from competitors and generating solid earnings growth.

And it's not just the discount stores either. While the likes of


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will probably stand out from the crowd as consumers remain thrifty, a handful of specialty apparel stores, home furnishings outlets and even luxury goods producers are expected to show respectable growth in the upcoming holiday period.

Specifically, analysts point to


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Hot Topic



Pier 1 Imports

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as companies that will succeed in persuading consumers to open up their pocketbooks despite a weak economy, high personal debt levels and concerns about job security.

Richard Hastings, vice president, chief economist and retail analyst at Cyber Business Credit, said some specialty apparel makers have been doing well for a while because they understand what their customers want and deliver it to them at reasonable prices.

Why a Duck

Chico's, which targets women over 30 with stylish-yet-comfortable clothing, said same-store sales rose 18.1% in October and recently raised its third-quarter earnings outlook. Meanwhile, Hot Topic, which targets 12- to 22-year olds with music-influenced apparel, also raised third-quarter guidance after saying that October same-store sales rose 8.1%.

For the fourth quarter, which includes the crucial holiday period, analysts are looking for Chico's to pull in a 33% gain in earnings per share, while Hot Topic is slated to grow profits by 18%. Analysts say the growth isn't a function of poor comparisons and note that projections for next year are equally impressive.

"They're just dominating the target they've defined and do an enormous amount of repeat business" Hastings said, adding that price deflation in the clothing category has allowed these firms to seize market share away from the discounters.

Stephen Deedy, vice president of the retail and consumer products group at Cap Gemini Ernst & Young, likes

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, which he believes have separated themselves from the pack by offering more original products and a better shopping experience.

"The specialty retailers that will succeed will be those that have done a good job of being what they are," he said. "You've either got to be known as having a great deal or be really well known for the product or service you're providing."

Different Drums

Regardless of what's going on in the economy, analysts say newness and novelty does sell and companies that provide original patterns, materials and designs will outperform.

Tim Hathaway, a retail analyst at Brown Investment Advisory, said that, in general, he feels there are too many retailers competing for the same business and he believes that promotional activity will be rampant this Christmas, which could eat into profit margins. But he agrees that some firms have done an excellent job of differentiating themselves. One such company is Coach.

Coach, which offers expensive leather accessories, recently said it is comfortable with analysts' fiscal second estimates and believes the upcoming holiday shopping period will be strong. The firm is expected to generate earnings growth of 32% in fiscal 2003.

"Coach has put up great numbers consistently in the midst of a weak consumer environment because people want to buy their product," said Hathaway. "They continue to innovate and update their merchandise."

Hathaway said he also likes Tiffany, which never sells its products at a discount and recently posted a 19% jump in third-quarter earnings. Hathaway doesn't own Coach but does own Tiffany.

Upwardly Mobile

Analysts offer different explanations for the strength in luxury goods companies. Some maintain that wealthy consumers have been less affected by the slowdown in the economy.

"We continue to be a 'have and have not' society," said Eugene Fram, a professor of marketing at Rochester Institute of Technology. "Those who have done well will not be as constrained and will be buying luxury merchandise."

But others believe that higher-income individuals have tightened their reins more than any other group and that middle-income consumers have simply been buying the cheaper items available at Tiffany and Coach.

"They have product offerings that are in the buying range of middle-income people," Hathaway said.

Among other retailers that are expected to do well in the upcoming holiday period are some of the home decor stores. The strength in this group makes sense given the record home sales and refinancing boom this year.

Hastings said he particularly likes Pier 1 Imports. The firm recently posted a 6.3% jump in October same-store sales and slightly raised its own earnings projections for the third quarter ending in November. For the full year, earnings per share are expected to rise almost 28% and are slated to climb 15% in fiscal 2004.

On the Cheap

Still, analysts say that, on the whole, it's the discount stores that look set to dominate this Christmas as consumers continue to seek out the lowest prices.

Almost two in five people said they would spend the largest portion of their holiday budgets in discount department stores over the holiday period, although the Internet and dollar stores are also gaining popularity, according to a study by Deloitte & Touche.

"Discount department stores are still king," said Tara Weiner, managing partner of Deloitte's National Consumer Business Practice.

The fact that discounters are offering such a wide range of products this year, including consumer electronics, means they'll be able to take market share away from other firms like

Best Buy

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Circuit City

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. Still, Weiner noted that consumers are also recognizing the opportunity for value in other channels, such as dollar stores, which have made a big improvement in the quality and consistency of their merchandise.

"You've got to pick one dimension, either price or service or experience or product, and dominate on it," Deedy said. "Any companies that don't have consumer relevancy or don't have great promotions are in great jeopardy of being walked right past."