Stores lower expectations for holidays Seasonal sales no longer projected to be best of decade

But '97 likely to be topped

Dip in confidence by the consumer may buoy discounters

Retailing

November 08, 1998|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Christmas in July would have suited most retailers just fine this year.

Buoyed by low unemployment, high consumer confidence and a soaring stock market, many retailers expected the best holiday season of the decade.

Now, as the critical holiday shopping season revs up, retailers find themselves decidedly more cautious.

"We're going into this with a level-headed and conservative outlook," said Laura Mahle, a spokeswoman for Kmart Corp., which plans its usual dose of holiday advertising, store promotions and community programs to get shoppers into its stores.

"We feel optimistic that consumers are shopping the discount channels for the holidays more and more each year, and that should help us generate sales."

Analysts have pulled back on original projections of a 5 percent to 7 percent sales increase, made before global economic turmoil hammered the stock market and turned consumers' stomachs queasy.

Sales are still expected to beat 1997's holiday season, but more likely by 2 percent to 4 percent, analysts say.

"Consumer confidence has come down somewhat. People are still worried about what's happening with the stock market," said Joseph Ronning, a retail analyst with Brown Brothers Harriman in New York. "There are more questions concerning the economic outlook now than five or six months ago.

"All of this will have some impact."

The uncertainty, coupled with a volatile stock market, could affect spending patterns.

"The perception of the consumer of their wealth is their wealth has been going down," said Anthony L. Liuzzo, professor of business and economics at Wilkes University in Pennsylvania.

"Instead of $100 on a present, they may spend $80."

"Retailers do not fully appreciate all these economic conditions, and they're overstocking," Liuzzo said. "As a result, you will see an excess of inventory in the early and middle parts of December. The bottom line here is this is not going to be a very merry Christmas for some of the retailers."

Analysts disagreed, however, on how well prepared retailers are.

Weaker than expected sales in the third quarter have prompted retailers to tighten their inventories moving into the fourth quarter, said Jeff Stinson, research analyst with Cleveland-based Midwest Research. "They don't want to be stuck in the position of taking large markdowns," he said. "We're seeing retailers be cautious."

An understandable strategy -- given the importance of the holiday selling season.

The weeks after Thanksgiving can account for at least a quarter of annual sales and 40 percent or more of annual profits.

Lord & Taylor has scrambled to open nine new stores in 14 weeks, including in White Marsh and Annapolis in September and two last week in Owings Mills and Columbia.

Employees have rotated from other stores and worked seven-day weeks, said Marshall Hilsberg, Lord & Taylor's chief executive officer, who came to Owings Mills last week to open the store there.

'Critical period for us'

"We've gone full-bent to work to get the stores open for the holiday period -- a critical period for us," said Hilsberg, as he brushed past racks of chenille pullovers, cashmere sweaters and fleeced jackets, the "comfort" apparel the retailer is counting on selling big. "That's when you create an impression to last the following year."

Hilsberg believes that the rush should pay off.

Strong employment and rising wages should supersede worries about stock market ups and downs and translate into solid sales this year, he said. Upper-end Lord & Taylor expects to draw its share of shoppers -- even the value-conscious -- by outdoing competitors in quality, service, selection and atmosphere, Hilsberg said.

"Ultimately, it has to be the whole shopping experience," he said.

"People want to feel good when they spend money."

Delivering on service could be key for department stores, which have been steadily losing market share to discounters and specialty retailers alike.

"The one hope for a department store is at Christmas or Hanukkah; consumers frequently want the service associated with a department store," said John Konarski, vice president of the International Council of Shopping Centers.

One possible answer

"If department stores focus on service and get out the merchandise the consumer wants, they may be able to recoup the disappointing runs they've had."

For the most part, retail chains should expect to perform much as they have all year, analysts said. That would mean strong showings for discounters such as Wal-Mart Stores Inc., Kmart and Target and specialty stores such as Gap Inc. -- chains that had sales increases in October of from 4.2 percent to 18 percent.

And it would mean continued weak sales for Sears, Roebuck and Co., J. C. Penney Co. and Federated Department Stores, which owns Macy's.

May Department Stores Co. parent of Lord & Taylor as well as of Hecht's, has managed to buck the department store trend of declining monthly sales, reporting an October sales increase of 2.8 percent.

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