Holiday Retail Sales May Drop for Second Year, NRF Forecasts

By Allison Abell Schwartz

Oct. 6 (Bloomberg) -- U.S. holiday sales may decline for the second year as consumers stick to budgets and retailers cut prices to encourage spending, according to an industry group.

Sales for the last two months of the year will probably fall 1 percent to $437.6 billion from the same period in 2008, the National Retail Federation said today in a statement. That’s not as steep as last year’s decline of 3.4 percent, the first drop since the NRF started tracking holiday sales in 1995.

The highest U.S. unemployment in 26 years, stagnant wage growth and wavering consumer confidence will reduce spending, according to Washington-based NRF. Holiday shoppers will continue to flock to discount retailers and warehouse clubs as they shop on tighter budgets, according to Rosalind Wells, the federation’s chief economist.

“It’s going to be heavily promotional because consumers are very cautious,” Wells said yesterday in a telephone interview. “They’re going to wait until they get the best price that they can get on things.”

TJX Cos., the Framingham, Massachusetts-based owner of the T.J. Maxx and Marshalls clothing chains, and Menomonee, Wisconsin-based Kohl’s Corp., the fourth-largest U.S. department store chain, have reported sales gains over the past two months. Higher-priced retailers including New Albany, Ohio-based Abercrombie & Fitch Co. and New York-based Saks Inc. have reported steep declines.

The NRF forecast excludes sales at car dealers, gas stations and restaurants. The trade group forecast a 3 percent decline in retail sales for all of 2009.

Discounts may not be as deep as they were last holiday season because retailers have trimmed inventory to match the pace of consumer spending, Wells said.

‘Razor-Sharp’

“Retailers’ focus on the holiday season has been razor- sharp with companies cutting back as much as possible on operating costs in order to pass along aggressive savings and promotions to customers,” NRF President and CEO Tracy Mullin said in the statement.

Consumers may shop online more this holiday season to limit trips to the mall that can prompt unplanned purchases, Wells said in the interview. Shopping online helps consumers limit discretionary spending because it’s easier to stick to a planned purchase, she said.

A drop would mark the first back-to-back decline in holiday retail sales in four decades, according to Stamford, Connecticut-based Archstone Consulting, citing U.S. census data. Archstone forecast yesterday that holiday retail sales will fall 1 percent.

The U.S. unemployment rate rose to 9.8 percent in September, the highest since 1983, from 9.7 percent in August, the Labor Department said Oct. 2. Payrolls fell by 263,000, more than forecast in a Bloomberg survey of economists.

Confidence Falls

Confidence among U.S. consumers unexpectedly fell in September. The Conference Board’s confidence index dropped to 53.1, from a revised 54.5 in August. Consumer confidence was projected to increase to 57, according to the median estimate in a Bloomberg survey.

“Last holiday season, I think, most retailers were taken by surprise about how precipitous the drop was in retail sales,” Wells said. “Retailers have had almost a full year of pretty weak sales so they’ve started to adjust to that.”

To contact the reporter on this story: Allison Abell Schwartz in New York at aabell@bloomberg.net