With the holiday shopping season set to kick off at the end of next week, retail industry observers are exhibiting a glimmer of hope that sales will be better this year.

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Retail outlook for holidays gets a bit brighter

November 19th, 2010

NEW YORK – With the holiday shopping season set to kick off at the end of next week, retail industry observers are exhibiting a glimmer of hope that sales will be better this year.

Retail market researcher Kurt Salmon Associates said this week that although consumer confidence remains shaky, retail sales should see a modest increase through the holiday season, aided by growth in personal consumption.

Personal consumption expenditures stand to grow 2.1% to 2.6% for the final quarter of 2010, Kurt Salmon Associates predicted. The findings are based on the research firm's proprietary analysis of historical consumer consumption figures and intent to spend data.

Since June 2009, the official end of the "Great Recession," nondiscretionary consumer spending — in categories such as health care, housing and utilities — has buoyed a slow but steady recovery, Kurt Salmon Associates noted. However, in the last quarter, discretionary categories have picked up, especially apparel.

The firm's analysis indicates that spending on durable and nondurable goods will continue to outpace spending on services this holiday sales season.

"Now, a year and a half into the recovery, we are seeing discretionary spending picking up," stated retail expert Todd Hooper, a Kurt Salmon partner. "While high unemployment is preventing some consumers from taking part in the emerging recovery, we still expect the improved discretionary spending to translate into modest year-on-year gains for retailers."

High joblessness continues to restrain consumer confidence, which remains below prerecession levels and declined slightly in August and September, Kurt Salmon Associates reported.

And while consumers are hinting that they're ready to spend more, their new purchasing habits are not yet set, the researcher pointed out. "Consumers are still settling into their post-recession spending rhythm," Hooper explained. "They know they have to adjust their spending, but they are still sorting out priorities. During this transition, they are not able to consistently anticipate how their spending will change for any given category."

To entice shoppers, retailers have gotten an early jump on holiday promotions.

According to a preliminary Black Friday shopping survey conducted for the National Retail Federation (NRF) by BIGresearch, up to 138 million people plan to shop Black Friday weekend (Friday, Saturday and Sunday), up from the 134 million people who planned to do so last year.

According to the survey, about 60 million people say they will definitely hit the stores, and another 78 million are waiting to see if the bargains are worth braving the crowds, NRF reported Thursday.

"The rules for Black Friday have changed significantly," commented NRF president and chief executive officer Matthew Shay. "Instead of waiting until Thanksgiving Day to announce their promotions, many retailers are getting shoppers excited about Black Friday by offering sneak peeks of deals in advance, using social media to create buzz, or teasing upcoming deals on their web sites."

Earlier this week, the Retail Industry Leaders Association (RILA) declared that "the American consumer is back." The retail trade group noted that U.S. retail sales climbed again in October, marking four consecutive months of gains.

Overall monthly retail sales data for October released Monday by the Department of Commerce showed an increase of 1.2% over September sales and of 7.3% over October 2009, RILA pointed out. Retail trade sales in October edged up 1.3% from September and 7.7% from the year-ago period, according to The Commerce Department.

"Although still cautious and in search of value, the American consumer has returned," RILA president Sandy Kennedy stated. "With four consecutive months of sales gains, retailers are happy to turn the page on the last three years and embrace a more optimistic future. As the holiday shopping season arrives, retailers are eager to attract these shoppers back to their stores with attractive product assortments and great deals."

Same-store sales (excluding Walmart) also rose in October by 1.7% year over year, though that growth was less than gains of 2.8% in September and 2.3% in October 2009, according to Kantar Retail, which noted stronger-than-average results at food, drug and mass retailers.

Still, the market researcher said sales in the coming months may get a lift as shoppers seem more amenable to spending for the holidays. Its October ShopperScape poll found that 46% of shoppers plan to spend about the same on holiday gifts as last year, up 3 percentage points from a year ago, and 40% plan to spend less on holiday gifts than last year, down 5 percentage points from a year ago.

"Improving spending intentions among shoppers should ensure that sales growth does not sag too much as the year-ago comparison periods get even tougher into November and December," observed Kantar Retail senior economist Frank Badillo.