Registers set to jingle
As holiday shopping gets under way, retailers expect the best sales in four years. Not all analysts are as optimistic.
As shoppers hit the mall Thursday, retailers from Richmond, Va., to La Jolla, Calif., expect a return to the golden '90s, when cash flowed and price slashing was practically nonexistent.
Driving these expectations: an economy moving at a NASCAR pace, and a better national mood. If these expectations become reality, this could be the best holiday sales period in four years as consumers grab J.Lo T-shirts, DVD players, and retro toys from the '80s.
"People are tired of gloom and fear. They just want to embrace an economy that seems to be moving," says Heather Schott, owner of the Village Finery, a boutique in Shepherdstown, W.Va.
But some analysts aren't ready to proclaim a boom. And surveys show major discrepancies: While several project robust buying, others find consumers in a more cautious state of mind.
The National Retail Federation (NRF) projects a 5.7 percent increase in sales over last year. It points to the stronger economy. Indeed, on Tuesday, the Commerce Department revised the third-quarter gross domestic product up by one full percentage point to 8.2 percent - the fastest rate in 20 years.
It doesn't hurt that that many stock portfolios are up at a healthy double-digit rate. And since September, retail sales have been picking up. "There seems to be a willingness to spend," says Scott Krugman of NRF.
Businessman Ed Foy has particularly noticed this in the past 10 days. "It's crazy. We're shocked," he says.
His company, E Fashion Consulting in Carlstadt, N.J., runs websites that sell pop culture products, such as J.Lo T-shirts and Eminem fleece-lined jackets. "We're looking to grow 300 to 500 percent over last year," he says. "Pop culture is hot right now."
Ms. Schott in West Virginia noticed an improvement in September. "I sense a lot of strength," says the boutique owner, who adds that this is giving her confidence for her spring ordering.
On Monday, though, the Conference Board, a business research group, released a more pessimistic survey on holiday spending. Households said they planned to spend $455 on gifts, down $28 from last year. This would indicate a drop of 5 percent in retail sales.
"Our thinking is that consumers often set budgets and err on the side of caution," says Lynn Franco, director of the Board's Consumer Research Center. "Once the season begins, one tends to exceed one's budget."
One clue as to how consumers will act is their amount of disposable income. In part because of the tax cut, income rose at a 9.9 percent annual rate in the third quarter - the strongest showing since the first quarter of 2002 (another time of tax cuts).
Yet on Wednesday, the government reported consumer income in October slowed to 4.7 percent - a modest but not exceptional annual rate. "However, what might influence holiday purchasing plans is the prospect of large tax refunds early next year," says Paul Kasriel, an economist at Northern Trust Co. in Chicago. The most recent tax cuts were retroactive to Jan. 1, but withholding was only adjusted to July 1. As people file their tax returns, they may be surprised to see rather substantial refunds.
How well the malls do Thursday could also be influenced by consumer confidence. On Tuesday, the Conference Board reported confidence jumped to its highest level since September of last year. This optimism was echoed Wednesday by a University of Michigan survey.
Perhaps most important, Americans are becoming more optimistic about the availability of jobs - which was reinforced on Wednesday when the government reported jobless claims last week dropped once more. "Not only is the rate of firing slowing, but the rate of hiring is picking up," says Mr. Kasriel.
One barometer of consumer behavior may be Wal-Mart, the nation's largest retailer. Wal-Mart says that currently, if its consumers are faced with a choice of three items with three different prices, they'll buy the least expensive item. "This indicates they are still cautious consumers," says Tom Williams, a spokesman. The big chain also finds that buying picks up twice a month around paydays. "This indicates there is a liquidity issue out there," says Mr. Williams.
This less-than-enthusiastic consumer activity is one of the reasons why Wal-Mart has only modest expectations of a 3 to 5 percent sales increase in the fourth quarter.
Indeed, many consumers say the economy over the past several years has made them tentative about their spending plans. That's the case with Kate Ramsey and John Smallman, graphic designers from Seattle. He recently changed jobs, and she was let go a few months ago and now freelances. "Both of our job situations have changed, so we can't spend as much," says Ms. Ramsey as they shop on New York's Fifth Avenue. "A lot of the people I've talked to are trying to make gifts this year. I know I'm going to."
Other consumers talk about trying to manage their debt load. Becky Spegal and her husband recently bought a big-ticket item - a new van - so they are cautious about spending on gifts. Ms. Spegal says she probably won't spend more on gifts this year. "We have four kids, so we have to share the wealth," says Spegal who is in New York with her daughter, a cheerleader on an Indiana band participating in the Macy's Thanksgiving Day Parade.
But Ida Morse, visiting New York from Galveston, Texas, says her attitude has changed since Sept. 11. "We saved, we worried about our kids," she says of the pre-Sept. 11 era. Now, "If I have it, I better use it, and not worry about saving."
• Adam Parker contributed to this report in New York.