Fourth-Quarter Sales Outlook Remains Too Close To Call

By Alan Wolf On Nov 13 2000 - 8:00am

NEW YORK -Handicapping the upcoming holiday selling season is proving tougher than calling the presidential election.

The difficulty is due to a flood of contradictory reports and predictions from pollsters, analysts and the retailers themselves that range from everything-is-rosy optimism to sky-is-falling fear.

Leading the Chicken Little camp is The Conference Board, whose monthly index showed that consumer confidence dropped precipitously in October. According to the survey of 5,000 U.S. households, citizens are becoming more pessimistic about business conditions, job opportunities and personal income, which should be a cause for concern among retailers.

Why all the gloom? Lynn Franco, director of The Conference Board's Research Center, suggests that "the erosion in confidence has been prompted by a cooling economy, apprehension regarding soaring oil prices and volatility in the financial markets."

The news hasn't been lost on Wal-Mart, the world's largest retailer, which is disquieted by the current economic outlook. Observed a company spokesman, "Gasoline prices are rising, the first home heating bills will be coming through soon, and outstanding credit card debt is up 10 percent over last year while savings are down. Consumers are going to be cautious."

Agreed a spokeswoman for discount competitor Kmart, "It's a tough year for retail overall. It costs more to fill up a car and to heat a home, and then there are the uncertainties surrounding the presidential election."

Also adding a chill to the air, and certainly cutting closer to home, was last month's stunning announcement by Circuit City that its sales had slumped across the board, foreshadowing a possible loss in its fiscal third quarter.

As president/CEO Alan McCollough, acknowledged, "Although we had anticipated modest sales disruption related to our exit from the appliance business and the partial remodel of all stores, since the end of September sales have softened significantly in virtually all product categories, including those not affected by the remodeling process."

Although other CE merchants maintain high hopes for a stellar digital Christmas (see TWICE, Oct. 23, p. 1), Circuit City's warning created a downdraft for the sector that sent shares of Best Buy, RadioShack and other major CE chains sharply lower.

But buttressing their buoyant view was the Consumer Electronics Association's release last month of its annual Holiday Purchase Patterns survey, which once again posited consumer electronics high atop most consumers' fourth-quarter wish lists. Although the report recognized that uncertainties over the economy are "likely to put a damper on holiday shopping," the survey of 1,000 random U.S. households showed that 21 percent expect to spend more this year than last.

Moreover, nearly 7 in 10 adults, representing about 69 million households, are likely to visit a CE store during the holiday season, CEA concludes, where computers, DVD players and video game systems-which rank among consumers' most desired gifts-will vie for their disposable dollars. (See table on p. 1.)

More good news came from the National Retail Federation (NRF) and Deloitte & Touche, whose annual Retail Holiday Outlook survey showed that a solid 82 percent of consumers say they intend to spend the same or more on holiday gifts this year than last, about $836 on average. Retailers, the report added, expect November and December sales to increase 4.5 percent above the 1999 holiday season, while the NRF is predicting as much as a 6.5 percent rise in holiday revenue.

"The survey confirms that retailers can expect another successful holiday season," said NRF president/CEO Tracy Mullin. "In spite of pre-election jitters and a see-saw stock market, the only bears to be seen this year will come gift wrapped."

Similarly, a holiday sales survey by the International Mass Retail Association (IMRA) shows that shoppers plan to spend $828 on average this season, although the final total will likely hit $1,000. What's more, fully 53 percent say they plan to do their shopping in specialty stores, especially electronics shops.

"Consumer electronics is a very hot category and is making a very big push this year," said Brit Wood, the trade group's senior director of research technology and education. "Although it's still in third place, it's surging and will challenge toys for the No. 2 spot. Mass retailers will do very well in that area this year."

Best Buy couldn't agree more. "We're anxious to get into Christmas," said Brad Anderson, president/chief operating officer, noting that digital products are "dropping in price points and size, and growing in what they can do, which speaks incredibly well to our Christmas season and beyond."

Nevertheless, the chain issued an earnings alert last week, citing a slowing economy, increased promotional activity and "a more cautious consumer environment."