Holiday Retail Forecast Optimistic

December 2, 2002
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GRAND RAPIDS — Ernst & Young retail industry analysts project a 4.8 percent increase in holiday retail sales over last year, despite uncertainties on both economic and foreign fronts.

The continued growth of the U.S. economy and the low interest rate environment bodes well for consumer spending this holiday season, analysts believe.

Low interest rates, in particular, are expected to tempt consumers to buy high-end electronics like TVs, digital cameras and DVDs, said Dave Hoogendoorn, a partner in Ernst & Young’s West Michigan practice.

Those types of high priced, high quality durable hard lines that appeal to every member of the household — what Hoogendoorn refers to as “investment spending for the family” — are expected to be this season’s “winners.”

In addition to low interest rates, sales will be driven by installment and extended term payment options offered in connection with those same family pleasing, high-end products, he said.

Ernst & Young analysts anticipate the discounters and off-price specialty retailers will do well — at the expense of the department stores — this holiday season.

“The discounters and off-price specialty retailers are those that have the ability to ‘tempt’ the consumer to spend. That’s the business model by which they’re built,”  Hoogendoorn said.  

Luxury goods are expected to have “a quiet year,” he added. Only the luxury items that are priced well will do well.

He said the company’s research, which is based on 11 years of data, indicates that many retailers planned well in advance of the West Coast dock strikes and most have their holiday inventory on hand.

“The only lingering concern would be if an item becomes ‘hot’ and can’t be reordered quickly. But generally speaking, we think retailers planned well in advance for the aftermath of the dock lockout.”

Ernst & Young analysts believe e-tailing will have its best year ever. However, as a percentage of total growth in retail sales, e-tailing this season will be proportionally smaller, Hoogendoorn said.

Those e-tailers that are still around are now in a position to have one of their better years, he explained, because the e-tail “survivors” have fulfillment capabilities, improved Web site navigation and other tools that facilitate buying.

He said the one thing about the e-tailers that analysts see in the study is that they are experimenting with features like free shipping to encourage early shopping on their Web sites.

The early cold weather trend will likely drive regional results and could slightly impact predictions, because an earlier winter arrival could prompt shoppers to hit the malls sooner,  Hoogendoorn noted.

 

An early cold weather trend could actually extend the holiday season and lead to a more buoyant holiday season.

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