Retail report: holiday sales to drop this year

The retail environment has been daunting for months. And the consumer malaise won't lift anytime soon, according to one projection Tuesday: Sales this holiday season will be 1 percent lower than last year, says the normally optimistic National Retail Federation (NRF).

If this happens, it would be the second year in a row of declining holiday sales – the first time in 40 years that sales have dropped two years running. Last year, holiday sales were down 3.4 percent.

“This is a very realistic view of what’s happening in retail,” says Scott Krugman, vice president for public affairs for NRF in Washington. “The rate of decline is not so bad, but the reality is this is not a consumer-led recovery and the consumer is not back yet.”

How retailers manage the season could have implications for the economy. If they agree with the NRF analysis, they're likely to offer more-than-usual discounts and promotions to attract customers. They're also likely to keep inventory low from the get-go so they're not stuck with a glut of product in January.

“This is the year consumers can lose the game of chicken,” Mr. Krugman says. “It’s not wise to put off most shopping for the last minute.”

Although the NRF has projected the 1 percent decline in holiday sales, it could be worse. Retail sales for the entire year are expected to decline about 3 percent.

The consumer has been hesitant all year because of declining housing prices and job insecurity. On the positive side, the stock market has staged a significant rally, and retail sales in August – the back-to-school season – were better than expected.

On Tuesday, the International Council of Shopping Centers (ICSC) and Goldman Sachs released a survey that showed retail sales improved for the second consecutive week. For the week ending Oct. 3, sales rose 1 percent compared with a year ago.

“A bout of cooler weather helped to spur customer traffic, especially at department stores and discounters, and helped the month to finish on a positive note,” said Michael Niemira, ICSC chief economist, in a statement.

Indeed, according to Planalytics, a weather forecasting service for business, the Northeast had its coolest September in three years. Some parts of Texas were the coolest in 50 years. But as a whole, the United States had its fourth-warmest September.

“A cool final week of September reminded consumers that Fall has arrived, spurring need-driven seasonal purchases that were stifled earlier in the month due to warm temperatures,” wrote Scott Bernhardt, chief operating officer of the Wayne, Pa., company, in a report Tuesday. However, he noted, heavy rain in the South hurt retailers there, except for those selling cleanup supplies and essentials.

On Thursday, retailers report their monthly sales figures for September. Mr. Niemira expects they will be down about 2 percent.

Although the first nine months of the year have been negative, the fourth quarter has potential for improvement, Krugman says. “There is lots of pent-up demand,” he says. “The consumer is paying down debt and putting money in the bank. If things improve, many consumers have the wherewithal to spend.”

-----

Click here for other financial headlines on Tuesday, including that air fares may be stabilizing.

-----

Follow us on Twitter.