High unemployment and tight credit will limit the amount of consumer spending dollars available to retailers.
The annual holiday shopping survey by consultant Accenture PLC (NYSE: ACN) reported 88% of shoppers plan to spend the same or less than last holiday season, discouraged from the lack of economic recovery. About 72% of consumers described their holiday shopping as "careful" or "controlled."
"As we approach the 2011 winter holidays - the fourth straight season set against a backdrop of economic uncertainty - Americans remain fixated on finances: their own and that of the nation," wrote Tod Marks, Consumer Reports senior editor and shopping expert. "So it's not surprising that people are even more intent on watching their dollars, shopping on a set budget and, of course, bargain-hunting."
Still, the National Retail Federation estimates this holiday season will see a 2.8% gain in sales in November and December, totaling $465.6 billion - a tiny bump for a sector that waits all year to profit from the holidays.
That means a few companies will manage to emerge from the melee in much better shape than their rivals. Those companies are already preparing for battle.
Retailers Fight for ShoppersThe fight to win shoppers amid modest spending expectations means consumers will be able to enjoy incredibly competitive promotional tactics.
"Knowing their customers are more focused than ever on value, retailers will entice shoppers with promotions that go beyond discounts, whether they're promoting free gifts with purchase, an extended warranty, or stellar customer service," said NRF President and CEO Matthew Shay.
Winning customers won't be easy. The increasingly budget-conscious shoppers have created a new type of consumer this holiday season: "precision" or "surgical" shoppers. These types of buyers go to the store with a mission and exit quickly. They aren't easily distracted by in-store sale items or flashy attention-grabbing gimmicks.
"They will be very targeted about where and what they buy, and will be more inclined to shop around for the best value," said Janet Hoffman, managing director of Accenture's retail practice. "Stores should focus on providing an experience and services that create a sense of extra value in mind for the shopper."