Retail Industry Alert | Christmas 2010: You Don’t Need a Weatherman to Predict Holiday Retail Sales Will Be Cold

Despite the "cautiously optimistic" stance that America’s retail executives use to hedge their predictions for holiday 2010 sales results, all indications are we’ll be "celebrating" another lackluster season, with sales that will make shareholders wince.

Retail stocks were down 13 percent in May and 6.3 percent for the year. As retail tends to lead the economy, there is little indication an economic turnaround is anywhere on the horizon. Despite increased earnings in Q4 of 2009, retailers will struggle to maintain profit growth through the second half of this year. As a matter of fact, in June only four of the 18 service sector industries reported lower sales; retail trade and "other services" which is dominated by uncategorized retail entities were two of the four.

Looking at the total economy we see little change. Unemployment remains at record levels. The stock market is fickle, at best, and 2010 will be another disappointment. Consumer confidence continues to be poor, struggling to remain at the 50 percent level. Despite the dismal atmosphere, Congress seems little inclined to extend unemployment benefits, home buyer tax credits or any other form of assistance that would lessen the burden on those affected by the economy.

On the positive side, over the past two years most retailers have learned liquidity is king, and inventories and expenses seem to be under control for most stores. This posture, coupled with a minimal rebound in sales, was enough to keep several major retailers, which were expected to file bankruptcy in 2010, out of the courts, at least through the end of the year.

Retailers expecting a significant increase in back-to-school sales are dreaming. Back-to-school sales have been in decline for years, as most kids choose to return to school wearing their summer clothes. As fall approaches they may react to what their friends are wearing, but purchases are becoming more item specific rather than wardrobe oriented as in the past.

Many analysts believe issues such as the European financial crisis, the uncertainty between North and South Korea, the oil spill and the stock market are impacting consumer spending. In reality the buying mentality has changed. Despite several months' uptick in luxury goods as a result of finance industry bonuses, the luxury retail sector dropped 5 percent in June. The strong retail results experienced in February and March were driven by an early Easter, not renewed consumer interest. The hot weather much of the country is experiencing this month may impact July comp store sales as shorts, swimsuits and T-shirts fly off the shelves, but this, too, will be short-lived and will not reflect a fundamental change in buyer mentality.

The S&P Retail Index, within a whisper of 500 just two months ago, closed Wednesday at 385.82. Here, a look at how its June close compares with recent milestones.

Therefore, we predict the November/December sales period, despite an extra day between Thanksgiving and Christmas, will once again reflect the sales results we have seen for the past two years, with comp store sales dropping 1 to 3 percent and total sales rising approximately 1 to 2 percent. Not a great Christmas present for retailers or their shareholders.

— Peter N. Schaeffer


	Peter N. Schaeffer Partner Carl Marks Advisory Group LLC

	212-909-8453 \| phone pschaeffer@carlmarks.com

Peter N. Schaeffer has more than 25 years of retail and consumer industry experience in the areas of investment banking, advisory and retail management. He is an experienced retail analyst with an extensive retail management background. Schaeffer served as a senior executive with Bloomingdales’ Inc. and Macy’s Inc., and was a senior retail and consumer analyst for Dillon Read and DLJ. He has been engaged in numerous banking transactions, including corporate advisory, equity offerings, private placements, corporate restructuring, and mergers and acquisitions.