Consumer confidence low, but won't sink holiday sales

Consumer confidence remains at historically low levels, but retailers still expect a modest rise in holiday sales.

Mark Dye/Photo taken by newscast for JAKKS Pacific
Grace Marie Coster (left) and Katherine Mae Coster enjoy a tea party at the Princess & Me event at Toys"R"Us Times Square in New York. The line of 18" dolls, accessories, and dress-up from Disney Consumer Products and JAKKS Pacific, Inc. was recently named to Time to Play's 'Most Wanted' list of toys for the holidays. Low consumer confidence may delay the start of the big shopping season, but retailers still expect an increase in holiday sales over last year.

As the holiday season approaches, cautious shoppers are expected to overlook a downtrodden economy, break open their pocketbooks, and spend more than they did last year, especially online.

It just may take some time for the holiday shopping season to move into high gear. New consumer confidence numbers for October showed a slightly larger than expected increase of 1.6 points, according to The Conference Board, but at 50.2 the index is still at historically low levels.

“If the consumer confidence is low, that means that holiday shopping will start later,” says Marshal Cohen, chief industry analyst at The NPD Group, a market research company. “Consumers will still spend this year. Just don’t look for the holiday season to start off with gangbuster early results.”

Instead, consumers will do their homework – browse online and visits stores, and not necessarily make purchases right away, Mr. Cohen adds. “It’s a matter of waiting it out to see who has the best deal.”

Holiday sales will grow 2.3 percent this year, the National Retail Federation (NRF) projects. That’s far higher than last year’s 0.4 percent rise over 2008. The Council of Shopping Centers forecasts a 3 to 3.5 percent increase. In a Nielsen survey, more consumers said they plan to increase spending for the holidays than they did last year, although most still say they’ll spend about the same.??

“I won’t go crazy spending because I’m sticking to a budget,” says Janet Cerr, a risk manager, while perusing board games at a Barnes & Noble store in Boston. To stay within that budget, she will do some of her shopping online.

Online, holiday sales should increase at least 15 percent, says the NRF based on survey data.

“When consumers are feeling frugal, they want to make sure they get a good deal. They go online,” says Fiona Dias, executive vice president of e-commerce service provider GSI Commerce. “You have a slew of new sites, Groupon and private sale sites like Rue La La, that have really fueled that fact.”

This year, online retailers will lure customers with incentives such as free shipping, reports the NRF.

Households earning $70,000 and more will drive the surge in online sales, according to Nielsen data. Consumers earning no more than $50,000 – a higher income than in previous years – will frequent dollar stores more this year.

That should help discount chains like Target and Costco, but high-end department stores and specialty shops should also see a surge in sales, Ms. Dias says. “Consumers have some pent up demand, and they’re tired of buying the cheapest stuff out there.”

The final two months of the year are crucial for retailers, representing approximately 20 percent of annual sales. When the economy collapsed just before the holiday season in fall 2008, shoppers froze and retailers saw a decline in holiday sales for the first time in more than 15 years, according to NRF data. Sales dropped 3.9 percent.

This year, retailers see reason to prepare for increased holiday shopping. They intend to hire 500,000 to 600,000 seasonal workers this year, says consulting firm Challenger, Gray & Christmas. That’s more new employees than last year, but still doesn’t reach the 600,000 plus seasonal hires in years before the recession.

This September, Macy’s announced plans to hire 65,000 seasonal workers, an increase from last year. They’ll increase their staff for the season by more than 40 percent, a move that reflects holiday expectations. The company anticipates sales in the second half of the fiscal year to grow by 3 to 3.5 percent.

Target, Borders, Toys R Us, and Kohl’s are among big-name retailers who have also announced plans for heavy holiday hiring.

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