Holiday Sales Gain in U.S. May Be Slowest in 6 Years

U.S. retailers may post the smallest holiday sales gain in six years as consumers facing rising unemployment and food prices pare spending on non-necessities.

Sales will probably gain 2.2 percent to $470.4 billion in the last two months of the year, the National Retail Federation said today in a statement. That would be the slowest growth since 2002's 1.3 percent increase, the Washington-based group said.

Consumers are grappling with food and fuel costs, the highest unemployment rate in five years, last week's Wall-Street meltdown and the worst housing slump since the Great Depression. They will be "frugal" and "less willing to splurge" this holiday, the NRF said. The economy may not improve until the second half of 2009, the trade group said.

"I'm afraid to spend that much on the holiday," Loretta McKenzie, 57, a nurse in New York, said yesterday in an interview. She plans to spend less this year buying gifts for her five children and seven grandchildren "due to the economy."

The NRF's forecast, based on economic indicators and U.S. Commerce Department data, excludes sales at car dealers, gasoline stations and restaurants. In January, it predicted a 3.5 percent sales gain for all of 2008. Holiday sales generally represent 20 percent to 35 percent of a retailer's annual revenue, according to the NRF. Sales in November and December 2007 rose 2.4 percent to $460.2 billion from the same period a year earlier.

Fuel Prices, Jobs

The International Council of Shopping Centers, a New York- based trade group, pared its forecast for September sales today for a second straight week, predicting a gain of as little as 1 percent, compared with the 2 percent or more projected earlier.

The Conference Board said last week its index of leading indicators, which points to the direction of the economy over the next three to six months, fell 0.5 percent in August, more than forecast. The average price of a gallon of regular gasoline was $3.74 on Sept. 21, a third higher than a year earlier, according to AAA. The U.S. economy has shed jobs for eight straight months and the unemployment rate is at 6.1 percent.

"Consumers are feeling financially squeezed," NRF Chief Economist Rosalind Wells said in a telephone interview. "They're looking for better deals, lower prices and cutting back on the number of items they are buying."

November and December sales at stores open at least a year may drop 1 percent to 2 percent, Merrill Lynch & Co. analysts estimated last week. Specialty stores such as Gap Inc. and department stores including Kohl's Corp. may decline as much as 4 percent, while discount chains may increase as much as 2 percent, Merrill said in a Sept. 18 report.

Wal-Mart, Costco

Wal-Mart Stores Inc. and Costco Wholesale Corp., the world's largest warehouse club, are among retailers who may benefit this holiday as shoppers look for bargains, said Stephanie Hoff, an analyst at Edward Jones in St. Louis.

Circuit City Stores Inc., which posted losses in six of the last eight quarters as Wal-Mart and Best Buy Co. lured customers, said yesterday it promoted James Marcum, an expert at turning around financially strapped companies, to chief executive officer.

The removal of Philip Schoonover as CEO signals the electronics retailer may not be able to find a buyer, said Colin McGranahan, an analyst with Sanford C. Bernstein & Co. in New York.

Wal-Mart, the world's largest retailer, fell 1.4 percent to $58.89 yesterday in New York Stock Exchange composite trading. Before today, the stock gained 24 percent this year, compared with a 9.5 percent decline for the Standard & Poor's 500 Retailing Index.

Source: Bloomberg