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Retailers See a Cut-Rate Christmas
Nov 26, 2002
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To avoid getting stuck with too much unsold inventory in January, stores have tightened up on supplies. Those inventories could be even tighter than planned because of the massive backup of goods caused by last month’s shutdown of West Coast ports, which are only now getting back to normal. But even tight supplies won’t have much impact on shopping habits, say analysts. Over the past decade, holiday shoppers have learned that good things come to those who wait, according to Steven Baumgarten, a retail industry analyst at Parker/Hunter Inc. in Pittsburgh.

"Consumers have been trained to look for the bargains," he said. "They have the power to wait until the last minute and buy on discount." That bargain hunting comes as retailers are bracing for a weak holiday season.

"We see all kinds of indicators that the consumers may be spending less this holiday season," said Leonard Roberts, CEO of Radio Shack. The electronics retailer is hoping that strong consumer interest in DVD players and digital cameras will help pry open consumers’ wallets this year. But there are few new hot products to spur sales, say analysts.

For example, video game consoles, which were strong sellers last year, should do well again this year. But price cuts will make it harder for retailers to turn a profit, according to Mr. Baumgarten. "Instead of $300, they’re at $200," he said. "So you really have to get 33 percent more sales to match your total revenue in the prior year.”

Low interest rates, which continue to fuel strong home sales and mortgage refinancings, should help sales of some goods, especially home furnishings. And, while job growth has slowed, real incomes continue to inch forward as the U.S. economy produces marginal growth. But consumers are giving very mixed signals about their spending plans. On the one hand, many say they expect to hunker down this year as the prospect of war with Iraq hangs over the holidays. The Conference Board’s consumer confidence index plunged to 79.4 in October, down from 93.7 in September, to its lowest level in nine years.

Despite the drop in confidence, consumers say they’ll spend an extra $21 this year, according to the results of the Conference Board’s annual spending survey. The research group pegs spending plans at an average of $483 — up from $462 a year ago. Another survey by UBS Warburg, found that nearly two-thirds of shoppers plan to spend about the same on gifts as they did last year, with 25 percent saying they’ll spend less, and 10 percent planning to spend more. Overall, analysts expect holiday sales levels to gain just a few percentage points over last year, when the Sept. 11 attacks kept holiday spending subdued. What’s harder to predict is how much of that gain in revenues will fall to the bottom line — especially for retailers that had to pay higher shipping costs to work around the West Coast port backup. After two months of haggling, port operators and longshoreman settled their dispute Sunday. But the logjam delayed shipments for weeks and forced many retailers to divert goods in transit to more expense modes like air freight.

The supply chain snarl could leave stores with more goods than planned later in the shopping season, which is already compressed this year by the late arrival of Thanksgiving, the unofficial start of the holiday retail calendar. (Profit comparisons with last year also will be skewed by the shortened shopping season, which has just 26 days this year compared to 32 last year. That’s why a retailer’s success this year will be better measured by looking at combined November and December sales, say analysts.) (Associated Press)

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