The unique set of circumstance facing retailers this quarter — economic uncertainty, the threat of war, seaport logjams — has cast the outlook for the holidays as hazy at best.
At worst, dealers may face a consumer whose enthusiasm for spending has finally waned, while a blizzard of below-cost promotions vies for a shrinking pool of discretionary dollars.
The somber scenario was painted by analysts, trade associations and by merchants themselves, many of whom are keeping inventories lean in anticipation of soft demand. Among their concerns:
- automakers have drained Christmas kitties with zero-percent financing deals;
- stock market volatility and fear of unemployment will temper additional big-ticket splurges;
- retailers have fewer shopping days between Thanksgiving and Christmas to make their numbers.
"There is a high degree of concern among the nation's retailers right now," said Michael Niemira, senior retail analyst for the Bank of Tokyo-Mitsubishi (BTM). "Retailers are acknowledging that they are facing many unknowns this holiday season, including a potential war with Iraq and the impact the West Coast port situation may have on inventories."
Niemira's pessimism was based in part on the latest Retail Executive Opinion Survey, a new monthly index compiled by BTM and the National Retail Federation (NRF) trade group. According to last month's tally, some 37 percent of top retail executives polled expect holiday sales to be softer than last year, while this figure rises to nearly 90 percent should the U.S. go to war with Iraq.
Merchants were evenly split on the impact of the dock dispute, however, with 39 percent fearing inventory shortages and 39 percent feeling unaffected. Another 22 percent were unsure of the outcome.
"Retailers are clearly concerned with the current economic environment," concluded NRF president Tracy Mullin. "NRF feels that this is going to be a heavily promotional holiday season. In essence, all retailers will be discounters."
Indeed, Aram Rubinson, Banc of America Securities retail analyst, sounded the promotional alarm in an Oct. 21 research note, based on his survey of weekly circulars from Best Buy and Circuit City. "This week's circulars indicate a step up in promotions," he said, with most highlighting that HDTVs are now starting as low as $699, while 12-, 18- and 24-month zero-percent financing deals abound.
"Our sensitivities with respect to promotion are heightened this year given our bleak outlook for holiday CE sales," Rubinson noted.
Bill Trawick, president and executive director of the NATM Buying Corp., also fears the worst on the loss leader front. "It's going to be very promotional," he predicted, with pricing on DVD players falling as low as $29.99 at the national chains on Black Friday.
Like Rubinson, Trawick also believes that last year's hike in post-9/11 CE sales, attributed to increased cocooning, will be a tough act to follow this Christmas, particularly for TVs.
The difficult year-over-year comparison is reflected in projections by the Consumer Electronics Association (CEA), which is pegging CE unit sales growth at 3 percent for the holiday season, compared to 4 percent last year. The lowered outlook comes amid CEA's mixed readings on consumer sentiment (see TWICE, Oct. 28, p. 14).
CIBC World Markets analyst Dan Wewer said the CEA's 3 percent projection matches the fourth quarter of 2000, which he described as "the last low point in CE retailers' historical comps." Accordingly, he projected "flatish" comps for Best Buy and same-store declines of between 2 percent and 3 percent this quarter for RadioShack, Tweeter and Circuit City, which has yet to receive several key holiday items due to the dock backlog.
Circuit City chairman, president and CEO Alan McCollough echoed the dour holiday outlook last week while issuing a third quarter earnings warning due to slower sales of DSS, wireless and other high margin categories.
"Given widespread uncertainty over the economy and consumer buying behavior," he said, "as well as the change in trends within our own industry during recent months, we believe it is prudent to adopt a more cautious outlook toward the fourth quarter."
Planned Holiday Purchases
% who plan to buy
% who bought last yr.