Retailers May Have a Cheerier Holiday Season to Look Forward To

The worst holiday season since at least 1970 left many retailers - including the now bankrupt Circuit City Stores Inc. (OTC: CCTYQ) - very little to be thankful for last year. But things might be a little bit cheerier this year, once consumers overcome the specter of last year's stock market crash and retailers slink away from what could be a disappointing October.

Holiday retail sales plunged 2.2% last year - the worst showing in more than 30 years. But retail surveys heading into the 2009 holiday season paint a slightly more palatable picture.

The International Council of Shopping Centers (ICSC) expects retail sales in November and December to climb 1% thanks to lower capacity and leaner inventories. That 1% may not sound like much, but it's still an improvement.

"One percent is not strong," said ICSC Chief Economist Mike Niemira. "It's just considerably stronger than we've been seeing."

The ICSC reasons that higher consumer confidence and lower inventories will give retailers a much-needed holiday boost.

"This year's holiday-spending season will be a lot better than last year," said Niemira. "The wear and tear of the recession and financial crisis on the consumer psyche is slowly giving way to renewed hope, optimism and most likely gift buying."

The Reuters/University of Michigan Surveys of Consumers supports that argument. The Reuters/UM poll for September was 73.5, up from 65.7 in August, while the Conference Board's index dipped to 53.1 from 54.5.

"Consumers were more optimistic about prospects for the national economy, inflation, and the unemployment rate, although most consumers thought their own finances would remain problematic for some time," said Richard Curtin, director of the Reuters/UM survey.

Many retailers are heading into this holiday season with a more positive frame of mind as well.

After being left over with a glut of inventory in 2008, retailers this year have scaled back their purchases. That means they won't have to offer steep, profit-eroding discounts to reduce inventories after the holiday season passes.

Moreover, not every retailer is cutting back this year. For instance, electronics giant Best Buy Co. Inc. (NYSE: BBY) - which goes into this holiday season without its old rival Circuit City - is downright bullish on about this year's holiday season.

"Consumers are back out spending again," Best Buy Chief Executive Officer Brian Dunn told reporters at a holiday media conference in New York. "We are hiring more people for seasonal business. You are going to see us go deeper on inventory bets. I'm more optimistic today than I was in June."

Unfortunately, the holiday doesn't extend into October, as reduced consumer spending is expected to have a much more pronounced effect on Halloween sales than it will on the holidays that follow it later this quarter.

Unlike last year's Halloween, which was viewed by National Retail Federation (NRF) President and CEO Tracy Mullin as a reason to "forget the stresses of daily life and just have a little fun," spending on candy, costumes and decorations this year will be down 15%, according to the NRF's Halloween Consumer Intentions and Actions Survey.

Consumers are expected to spend an average of $56.31 on Halloween, down from $66.54 last year, the survey showed. Total spending on the holiday is expected to reach $4.75 billion. Nearly 30% of consumers say the still-dire state of the U.S. economy will impact their spending plans for Halloween, viewed largely as a discretionary holiday by consumers, NRF Vice President Ellen Davis told CNBC.

"The economy has caught up to Halloween this year," said Mullin. "Since retailers know that Americans will be looking to celebrate on a budget, there's no doubt we will see creative costume and decorating ideas in every price point imaginable."

Of the consumers affected by the state of the economy, 88% plan to spend less overall, the NRF said. More than 46% said they would be buying less candy, 35.4% will be using last year's decorations without buying new ones, 16.8% will be making costumes instead of purchasing them, 15.8% will be reusing last year's costumes, 26.4% will not be participating in as many Halloween activities such as haunted houses or fall festivals.

"With part-time jobs more scarce and parents unable to help out financially, many young adults have been impacted substantially by the economy," said Phil Rist, executive vice president of strategic initiatives for BIGresearch, which conducted the poll of 8,526 consumers for the NRF. "The overriding theme for Americans' Halloween celebrations this year will be, ‘How creative can I be, and how little can I spend?'"

That means retailers will be all the more anxious to dust off their extravagant Christmas displays.

While the sight of wreaths, stockings and other decorations in October or earlier may give some consumers fits, some 40% of consumers will start their holiday shopping before Halloween, the NRF said.

"If retailers weren't successful with this strategy, those shelves, which are valuable real estate, would be shelving other things," NRF spokesman Scott Krugman told The Boston Globe. "If you're not doing this, you are just handing over market share to the competition."

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