Indiana University

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Thursday, October 29, 2009

Last modified: Thursday, October 29, 2009

IU's Center for Education and Research in Retailing projects a 1 percent decline in holiday sales

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Oct. 29, 2009

BLOOMINGTON, Ind. -- While the forecast for 2009 holiday retail sales is not as grim as a year ago, when seasonal activity fell by 3.8 percent from 2007, the Center for Education and Research in Retailing at Indiana University's Kelley School of Business still projects a 1 percent decline.

The center projects sales in November and December will total $437 billion. The forecast is only for holiday sales during the last two months of 2009 and excludes retail sales at restaurants, gas stations and online. It includes all traditional brick-and-mortar retailers across all formats and categories.

"Going into the fourth quarter last year, there was really nothing that retailers could do mid-October to impact the holiday season at that point. It was basically a ruined season," said Theresa D. Williams, the center's director, adding that many retailers were forced to slash prices by as much as 70 percent in order to reduce inventories.

"We're 13 months away from that really awful season. Most of the big shocks for retailers and consumers are over. The customer is still dealing with unemployment rates at or near record highs and a tight credit market, but we don't see those kinds of discounts going into this holiday," she said.

Something new this year that could affect holiday sales is the outbreak of the H1N1 virus and seasonal flu, Williams said, which already has led to many losing time at work and related take-home pay.

"It's certainly going to have an impact on discretionary spending if you're paid hourly," she said, adding that others simply are working few hours because of the economy.

Williams, who worked in retailing as a buyer for three southern-based department stores before becoming an academic, also has reviewed secondary research data that indicates more people are reducing their use of credit cards and putting more money in savings.

She is encouraged by the slight upticks in recent months in consumer confidence -- it rose by 1 percent in August and in September. In addition to its economic impact, the recession has affected what retailers think consumers are looking for this holiday season.

"Any time that customers are more concerned, afraid of unemployment or are more negative, you'll see trends toward traditions or comfort," she said. "This holiday season has been tagged the 'old-fashioned holiday' . . . Nostalgia is always a way to feel secure when the consumers don't feel safe."

For example, expect to see more of the traditional red, green and gold colors and more of an emphasis on the traditional icons inside and outside retail stores. Similarly, they're looking for technology items that aren't complicated to use, which meet fundamental needs.

"While there's still a conservative mindset, we are seeing some pent-up demand for certain categories," said Williams, who pointed to home improvement and vacation planning as examples.

Consumers are expected to continue gravitating toward large discount retailers such as Wal-Mart and Target rather than luxury department stores.

"Until the shoppers that are out there feel that the recession is over or see some differences in daily discretionary income and their opportunities to purchase, they're going to act the same way they have been and trade down," said Williams, also a clinical assistant professor of marketing.

Going back to last September, many retail stores have cut inventories -- as much as 15 percent from last year -- which particularly will affect the availability of highly desired toys and other hot products.

"If you really want a particular toy, you're probably not going to see it the week before Christmas," Williams said. "Most stores are carrying less of whatever it is they carry. That's their way of managing for a down economy."

One strategy that worked for retailers during last year's holiday season was the emphasis on gift cards, and Williams expects that they will be played up even more so this year. Gift card sales don't cut into profit margins, require any promotion or stores to give away items.

"Usually customers pay regular price with gift cards," she observed. "So they're (retailers) trying to put incentives around gift cards."

For example, some retailers are offering to add to the value of the card -- using dollars they normally would use to promote products -- or additional services, including gift wrapping and even clothing alterations in rare cases.

Another trend this fall has been an increase in cause marketing. For example, Hasbro is selling a plush elephant toy and is giving 50 percent of net profits from its sales to programs that work directly with children orphaned by AIDS in Africa. Many retailers have been involved in breast cancer campaigns and other socially conscious efforts recently.

"You will see that play on cause marketing associated with holiday gift giving more than we have in the past. It the same dollars spent, but it's a different angle that's frankly a little more refreshing," she said. "If it's a stretch, meaning that the cause doesn't directly relate to the retailer or their core customers then smart consumers, perhaps cynical consumers, will look at it as a marketing ploy versus something that's a good idea, so you need to be careful about how you go about doing it."

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