Sales increase in make-or-break period is unlikely to match last year's rise For retailers, holiday season is mixed bag

November 24, 1993|By Ross Hetrick | Ross Hetrick,Staff Writer

With consumers regaining confidence in the economy and retailers working harder for sales, merchants can expect a respectable increase in Christmas sales, but not on the scale of last year.

Sales in the fourth quarter -- especially in the November-December period -- are critical.

To many retailers, the Christmas season is make-or-break time, determining whether they will be profitable for the year.

For stores like catalog showrooms and jewelers, 44 percent of sales and all their profits come in the last three months, according to a report by the Richmond stock brokerage firm Davenport & Co. of Virginia Inc.

During last November and December, sales at retail chains rose by 3.1 percent from the year before, according to the Mitsubishi Bank Chain Store Sales Index. That increase came after two consecutive Christmas seasons when the rate, adjusted for inflation, actually declined -- 1.5 percent in 1991 and 1.4 percent in 1990.

Michael P. Niemira, vice president and economist for the New York office of Mitsubishi Bank, expects retail-chain sales in comparable stores this season to rise about 4.8 percent, or a net 1.8 percent after adjusting for inflation.

The Maryland Retail Merchants Association predicts that Christmas sales will increase by 4.5 percent to 5 percent.

"It will still be a reasonably good Christmas," Mr. Niemira said.

This year's figures, he said, will suffer in comparison with last year's jump, which was fueled by the public's optimism after Bill Clinton's election and the belief that there would be a strong economic recovery.

This year, analysts say, sales will be boosted because the nation's economy and jobs are picking up. The sector likely to benefit the most this year is electronics.

Those purchases, Mr. Niemira said, tend to be more discretionary and reflect "a measure of consumer confidence."

But apparel sales, which enjoy high profit margins, will vary from chain to chain, Mr. Niemira said. The outlook for that sector is "spotty at best," he said.

The mixed nature of this year's prospects were demonstrated yesterday, when shares of the nation's biggest retailers dropped after Johnson Redbook Service said sales through the third week of November were expected to increase 0.9 percent from a month ago -- much lower than the 1.5 percent increase expected by economists.

Based on a survey by the national accounting firm of Deloitte & Touche, total retail sales should increase 6 percent to 8 percent, or about 3 percent to 5 percent after inflation, according to Harris S. Gordon, consulting partner in the Boston retail unit of the accounting firm.

Total retail-sales increases are generally larger than comparable-store figures because they include sales in new stores and expansions.

"The results seem to indicate it will be fairly strong," Mr. Gordon said.

While not as great as last year, this season's figures should get a boost from the passage of the North American Free Trade Agreement, Mr. Gordon said.

"There is some element of psychological boost just from the mere fact that there is action by the administration . . . that they are moving forward," he said.

He also expects the pent-up demand for apparel, which was dampened by the warm fall weather, to help sales.

To reap maximum results from increased sales, retailers are keeping costs and inventories tightly under control and offering something unheard of a decade ago -- Christmas sales.

Starting in the late 1980s, pre-Christmas sales were offered out of desperation to get people to buy and to lower overstocked inventories. Now, the consumer has come to expect them, and retailers have no choice.

"It has become institutionalized," said Mr. Gordon of Deloitte & Touche.

Yet retailers should not suffer as a result of sales this year, because they have been able to maintain their profit margins by cutting costs, Mr. Gordon said. "They are re-engineering the way they do retail," he said.

Kenneth M. Gassman Jr., a retail analyst for Davenport, says there is good reason for optimism about holiday sales this year. He pointed to declining unemployment, a steady stock market, low interest rates and inflation and an uptick in personal disposable income.

But while retailers may sell more, it's going to be a much tougher selling job. One of these tougher customers is Jake R. Sutton, a guard at the Maryland Correctional Adjustment Center, the maximum-security prison in Baltimore.

Strolling through Westview Mall in Baltimore County, Mr. Sutton nTC said he plans to wait until a few days before Christmas to take advantage of the anticipated sales. "If you buy it now, you're going to pay top dollar," he said.

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