Splurges likely to stay part of Christmas past

[October 07, 2010]  NEW YORK (AP) -- The Christmas shopping season doesn't kick off for another six weeks, but retailers already are signaling they're prepared to discount aggressively if needed to entice shoppers still skittish about spending.

Stores expect gift buyers to scrutinize every purchase, from $20 toys to $1,000 designer jackets, and to limit how many stores they visit.

Most forecasters aren't expecting consumers to spend much more than they did during last year's tepid season, when sales rose only 0.4 percent after slumping 3.9 percent a year earlier, according to the National Retail Federation's calculations.

"The consumer is being very restrained. They're closely planning their spending and continue to reduce their shopping trips," said James Russo, vice president of global consumer insights at The Nielsen Co.

A lot is riding on holiday sales because they account for up to 40 percent of annual revenue for many retailers. For toy merchants, it's up to 50 percent.

In an address to investors late last month, J.C. Penney Co.'s Chairman and CEO Mike Ullman said that the department store chain was prepared to discount this Christmas season to bring shoppers in, after holding back a little last year.

"I think this year we have chosen to take a bit more pricing liberty," Ullman said.

Bill Simon, CEO and president of Wal-Mart's U.S. business, told investors at another conference a few weeks ago: "We expect a very, very competitive and aggressive Christmas and holiday selling season."

While fears that the economy might fall back into recession have eased in recent weeks, Americans haven't seen much tangible improvement since last Christmas. Unemployment is still stuck at almost 10 percent. Credit remains tight, crimping shoppers' ability to spend, and home values are still falling in many U.S. markets.

No wonder analysts say they see a growing divide among consumers.

"There is a sharp cleavage of those with full-time jobs, who are returning to spending on discretionary items, though cautiously, and the others without full-time jobs, who are spending solely on need," said Craig Johnson, president of retail consultancy Customer Growth Partners.

John Long, retail strategist at Kurt Salmon Associates, says shoppers will be looking for gifts that "exude practicality and smarts." He and others predict smart phones and e-readers, particularly Apple Inc.'s iPad and iPhone, will be hot. So will Sony Corp.'s Playstation3 Move controller and Microsoft Corp.'s Kinect, which both let video-game players control characters in a game with body movements, similar to the Nintendo Wii.

Russo expects merchants may see surprisingly strong sales of discretionary items such as clothing, toys, books and even vacations, fueled by shoppers with household incomes of $100,000 or more. Still, these shoppers will be studying the price and quality of each item.

Since this spring shoppers, even some wealthier people, have pulled back amid an economic recovery that has lost some momentum. While luxury shoppers are holding up much better, Neiman Marcus and several other upscale stores have reported erratic sales amid wild swings in the stock market.

For the back-to-school season, shoppers stuck to lists and shopped late. As a result, sales were only slightly better than last year, which was weak. That mirrors the holiday outlook.

The NRF expects a 2.3 percent increase to $447.1 billion, better than last year's tepid 0.4 percent gain. That would fall short of the 10-year historic average of 2.5 percent, according to National Retail Federation calculations.

The forecast is in line with other economists who predict holiday sales growth of about 2 percent to 3 percent. A 4 percent sales gain is considered healthy if inflation is low, as it is now.

"It's not optimistic, it's not pessimistic, but very realistic," said Matthew Shay, NRF's president. "It's very reflective of economic concerns."

The total retail sales figures from the NRF exclude business from auto dealers, gas stations, and restaurants. The estimate includes online sales from physical stores but not from online-only players like Amazon.com.

In this tough environment, store executives say they're trying to pack even more style and quality into items such as clothing and accessories -- without driving up prices.

Family Dollar Stores Inc. is coming out with $5 oversized wallets in faux snakeskin, $8 colorful cotton handbags and $5 dressy scarves in polyester blend, its first foray into trendy women's accessories. They follow a successful move into trendy children's wear under its Kidgits store brand that sells for $10 and under. They're intended to be stylish enough for gift giving but are also being pitched as something shoppers might buy anytime.

Meanwhile, home improvement leader Home Depot isn't pushing lavish holiday decor, but energy-efficient lightbulbs and other gadgets that will help reduce the cost of operating a home. And online jeweler Blue Nile is infusing more fashion into its lowest-price collection, priced anywhere from $60 to $250.

At Wal-Mart, whose blue-collar shoppers are having a harder time stretching their dollars to the next payday, the world's largest discounter is going for the extremely practical: holiday shoppers will find big piles of practical basics such as socks, sleepwear and underwear, and fewer trendy jeans and holiday sweaters.

Such basics will likely resonate with consumers like Muna Abdushukui, 29, who lost her job working in a gift shop two months ago, and has had a hard time finding work.

Abdushukui, who was at the Mall of America in Minneapolis recently with her 3-year-old daughter, said she's just sticking to the necessities.

"I'm buying food," she said.

[Associated Press; By ANNE D'INNOCENZIO]

Retail Writer Mae Anderson contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.