Despite Incentives, Outlook Flat For Holiday Sales

Christmas merchandise at a Home Depot store i i

A woman walks by Christmas merchandise offered for sale in October at a Home Depot in Niles, Ill. Analysts predict the troubled economy will result in flat retail sales this holiday season. Scott Olson/Getty Images hide caption

itoggle caption Scott Olson/Getty Images
Christmas merchandise at a Home Depot store

A woman walks by Christmas merchandise offered for sale in October at a Home Depot in Niles, Ill. Analysts predict the troubled economy will result in flat retail sales this holiday season.

Scott Olson/Getty Images

Retailers have been rolling out aggressive TV and online advertisements in an early effort to woo consumers. But economists expect consumers to spend about the same amount as they did last year during one of the worst holiday retail seasons on record.

The holidays always start early in the retail world. But this year major discounting began around Labor Day — well before any consumers even started thinking about turkey.

Black Friday, the day after Thanksgiving, is traditionally the time when retailers roll out some of their biggest sales of the season. But the recession has taken a big bite out of consumer spending and confidence.

Consumers say they expect to spend $638 per household this holiday season, an increase of only $22 over last year — when retailers posted one of the worst holiday results on record, according to Gallup's holiday spending forecast.

"Spending intentions for the holidays are basically flat with last year," says Dennis Jacobe, the chief economist for Gallup. He says consumers are reluctant to spend because they're worried about job security. The unemployment rate climbed into double digits in October, reaching 10.2 percent, the highest since 1983.

Getting Aggressive

So what are retailers doing about it?

They're trying to attract consumers with much more than just holiday jingles and icons.

"You're getting more discounts earlier. Everybody's getting more aggressive on price. But the other thing that's happening is retailers are holding much lower inventory levels," Jacobe says. "If you have money and you're going to spend it for the holidays, it's probably wise to go out and shop for the early sales if you want selection because the selection is not going to be great as you get closer to the holiday."

Retail Sales, In Billions Of Dollars

Retail sales

The competition for every consumer dollar has major retailers including Wal-Mart, Amazon.com and Target locked in price wars over books and DVDs.

Retail sales rose 1.4 percent in October, the Commerce Department reported Monday. The increase, which surpassed economists' expectations, represents a sharp contrast to the 2.3 percent decline in September. But the uptick was largely due to a boost in auto sales that rebounded after collapsing a month earlier as the government's Cash for Clunkers program ended. Without that gain, sales increased just 0.2 percent — half of what economists had predicted.

Pessimism Over Earnings

Consumer confidence declined further in October, according to The Conference Board, a nonprofit organization that makes economic forecasts. In a press release concerning its October findings, Lynn Franco, director of the group's Consumer Research Center, said consumers remain "quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays."

Tod Marks, senior editor for Consumer Reports, says the outlook for limited consumer spending this year is something of a "double whammy" because it comes on top of significant cutbacks last year during the height of the recession.

"Consumers are continuing to cut back significantly," Marks says. "Sixty-five percent of the American public is planning to cut back this year either on gift purchases, travel or entertaining."

The fourth quarter is a make-or-break opportunity for retailers, and Marks says it will create ample opportunities for good buys. Marks says retailers are using their Web sites to market themselves with online lunchtime sales.

But he says retailers are also saving their best deals for loyal customers willing to use their store credit card.

"There's more of an emphasis on shopper loyalty or rewarding the people who are most likely to spend money at their store," Marks says. He expects clothing, home electronics and gift cards to represent the largest categories of holiday purchases this year.

With additional reporting by The Associated Press

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