Holiday retail outlook: more conservative

Dragged down by rising energy prices and falling home equity, Americans are no longer opening their wallets quite so readily.

from the November 21, 2007 edition

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Forsome, that's still the case. As he parks his car in Manhattan, AlVance, a resident of New Jersey, shrugs off the higher fuel prices."I'm still planning on spending the same," he says. "The holidays arethe holidays.

And at the same gas station where taxidriver Smith was filling up, Kevin Browne says he'll just reach deeperinto his pocket to buy gifts for his 19-year-old daughter. "You have todo what you have to do," he says.

Although gasolineprices normally go down at this time of year, they have instead beenrising, reflecting the rising price of crude oil, which is now morethan $97 a barrel. According to the Energy Information Administration,the national average of gasoline is now $3.10 a gallon, compared with$2.24 a gallon a year ago – a difference of 86 cents a gallon. Somepredict that the price of fuels may rise further in December to reflectthe higher price of oil.

"If gasoline prices go up 30cents a gallon in December, that would be $1 billion not available toretailers," says Richard Feinberg, a professor at the Purdue RetailInstitute in West Lafayette, Ind. "A penny more for gasoline or a $1more for home heating oil comes right from the checkbook."

Surveysof consumer confidence are also starting to show an erosion in terms ofjobs and income gains. "It's comparable or softer than last year, andwe're seeing some apprehension going ahead," says Lynn Franco, directorof the Conference Board's Consumer Research Center in New York. "But,while it's moderated, it's still strong enough to support spending."

OnTuesday, the Conference Board released a survey that found thatconsumers will spend an average of $471 on gifts this season, up from$449 last year, an increase of almost 5 percent. Thirty percent willspend $500 or more.

Many retailers are already trying tofind ways to entice consumers. "It's going to be a good year forbargains from the consumers' perspective," says Jay McIntosh, theChicago-based Americas director of consumer products at Ernst &Young. "Toys especially will be discounted heavily because ofconsumers' concerns about safety" stemming from recalls.

Someof those discounts are already showing up at places like eToys.com,which has sales of up to 60 percent off through Thanksgiving Day. Forexample, the Real Chocolate Fountain, which allows children to dipdried fruit under flowing chocolate, is $3.99, compared with a listprice of $24.99. The "My Scene Goes Hollywood: Limo," a toy carcomplete with a beverage bar and hot tub, is discounted from $59.99 to$12.99.

Some apparel retailers are also planning onsales. At figleaves.com, an online retailer of pajamas and sleepwear, aThanksgiving sale is taking 20 percent off its entire stock. After thatsale ends, a new one will provide discounts on selected items throughChristmas.

"It's a great incentive for customers toshop on our site in the weeks leading up to the Christmas holiday,"says Jo Jeffery, vice president of communications for figleaves.com inLondon.

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