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It's beginning to look a lot like the holiday shopping season at stores like Macy's Herald Square in New York.
With the unemployment rate stuck above 9 percent and housing prices heading lower again, many American households have little to celebrate. But that doesn’t seem to have dampened expectations for a relatively strong holiday shopping season.
“The last thing parents cut back on is Christmas presents for their child,” said Toys R Us CEO Gerald Storch. “So Christmas always comes.”
After a rough year, retail sales have already begun to perk up well before the unofficial Black Friday start of the shopping season the day after Thanksgiving. Consumer spending rose 0.5 percent in October after a 1.1 percent increase in September as sales rose on everything from big-ticket electronics to sporting goods to books, according to the Commerce Department.
“Households may not be in especially celebratory mood, but they do seem willing to ramp up purchases in the final months of the year," said Bernard Baumohl, chief global economist at the Economic Outlook Group.
The National Retail Federation is looking for an “average” holiday shopping season – up 2.8 percent – after a surprisingly strong 5.2 percent gain in 2010. That would be just a bit better than the 10-year average increase of 2.6 percent.
Some retailers are even more upbeat.
“We’re very encouraged and very confident about the holiday season," said Macy's spokesman Jim Sluzewski. “We’ve told Wall Street to expect our sales to be up 4 percent to 4.5 percent in the fourth quarter. That’s relatively consistent with the sales increase we’ve seen all year."
Profit increases may be harder to come by, especially for discount retailers attempting to win over cash-strapped households. Discounters are expected to fight to gain market share by paring prices to the bone.
Global retail giant Wal-Mart signaled what shoppers, and its competitors, can expect with quarterly results that showed profits fell even as sales rose. Rivals Target and Costco will have to respond to Wal-Mart's aggressive cost-cutting or risk losing sales, said Deborah Weinswig, Citi Investment Research retail analyst.
“You’re seeing Wal-Mart take a very aggressive stand on pricing,” she said. “We’re seeing a very new Wal-Mart and they are taking no prisoners.”
Department store chains are turning to exclusive brands to avoid the increasingly intense price competition on items sold elsewhere. Kohl’s said its 20 percent boost in third-quarter profits was helped by strong demand for its exclusive Jennifer Lopez line. About half the company’s sales come from private label or exclusive brands, up from a quarter in 2004. Macy’s is relying on exclusive brands Tommy Hilfiger, Martha Stewart and Armani jeans to boost its bottom line.
As in years past, retailers have worked hard to better manage the supply of goods. If they order too much, they either have to slash prices more, which cuts into profits, or risk getting stuck with unsold merchandise. If they order too little, and their customers can’t find what they’re looking for, they’ll shop elsewhere.
Getting the right balance was even more difficult as widespread uncertainty about the economic outlook this summer prompted retailers to keep inventories lean. That could reduce the need for heavy promotional price-cutting, especially among high-end retailers with evergreen luxury brands.
“I think shoppers are always looking for a deal,” said Lord & Taylor CEO Brendan Hoffman. “But I don’t think you'll see super-deep discounts as compared to the last couple of years. The world's gotten promotional over the last few years and will continue to be so this year, but probably not noticeably more than over the last few years.”
The recent uptick in retail sales volume comes as consumers have begun to catch a bit of a break, which could help ease the pressure on holiday shopping budgets. Overall, prices fell in October –- largely due to a hefty 3.1 percent drop in gasoline prices –- the first monthly decline since June. Weekly earnings also bumped up last month, by 0.3 percent, though they’re still 1.7 percent below last year.
Retailers have also continued to ramp up online sales, which still make up a small portion of overall sales. But online shopping is growing more than twice as fast as in-store sales. More than two-thirds of retailers expected their e-commerce revenues to grow 15 percent or more, according to a survey by NRF's Shop.org division. Online giant Amazon posted a 44 percent increase in sales in the third quarter, helped by strong demand for its new Kindle Fire e-reader, which is expected to boost holiday sales.
To better reel in online shoppers, retailers have spruced up websites, created apps for mobile devices and turned to social media to try to extend the reach of their promotions. Three-quarters said they were expanding their presence on Facebook and 45 percent are boosting their Twitter presence. About a third said they plan to use a variety of digital channels to reach out to consumers with daily offers of deals and other promotions
More than 40 percent said they planned to offer free shipping, which has helped boost traffic for shipping companies. FedEx expects to ship record volume this holiday season: more than 260 million shipments, a 12 percent increase from 2010, between Thanksgiving and Christmas. The company expects shipments to peak at 17 million packages on its busiest day, which it figures will come on Dec. 12. That's 10 percent more than its busiest day last year. UPS has been more cautious in its forecasting, saying much depends on the turnout for the last two weeks of the season.
A look at the people who will actually be out shopping next Friday, as well as the hot trends this year, like comparison shopping, with CNBC's Courtney Reagan.
Related:
Black Friday backlash: Some retailers pull back
Full coverage: Holiday retail
We are not spending a dime this year just as last year. Economy is horrible, no jobs, no insurance, lots of people are destitute.