Forecast: Home Soft for Holiday

Columbus, Ohio and Washington, D.C. — The first pair of holiday forecasts brought unpleasant news, and while the estimates differ, both represent the worst holiday performance since 2002.

Retail consultancy and market research firm Retail Forward is forecasting the weakest holiday sales in five years — a gain of 3.3%. The National Retail Federation last week estimated sales for November and December will rise 4.0% to $474.5 billion, below the 10-year average of 4.8%.

"Retailers are in for a somewhat challenging holiday season as consumers are faced with numerous economic obstacles," said NRF chief economist Rosalind Wells. "With the weak housing market and current credit crunch, consumers will be forced to be more prudent with their holiday spending."

Acknowledging that Retail Forward's outlook "is probably one of the weakest out there," the firm's senior economist Frank Badillo said the gloomy forecast was based on expectations that fuel prices will remain high, more job cuts lie ahead, and the full impact of the housing slowdown has yet to be felt at retail.

Speaking during a webinar last week, he said Retail Forward expects the home goods segment to log a holiday sales increase of just 1.5%. Within the segment, Retail Forward expects the weakest performance to come from furniture and home furnishings stores. The company expects a year-to-year sales decline of 1.0% vs. a sales gain during holiday 2006 of 3.7%.

Noting that the housing slump hit the home improvement channel first, Badillo added, "Home furnishings stores usually lag about six months, so we should see their worst performance coming in the next six months — just in time for holiday."

Retail Forward and NRF agreed high-end retailers should weather the downturn better than others. NRF noted that luxury customers have previously demonstrated the ability to maintain high levels of spending during tough economic times. "Clearly the retailers most affected by the economy will be those catering to the low- to middle-income consumer. This could spell trouble for discounters and some department stores whose shoppers may be looking to trade down," according to the NRF.

Indeed, Retail Forward expects discount department stores to see sales slip 0.5% and small-format value retailers to eke out a 2.0% gain as economic worries compel low-income shoppers to tighten their purse strings.

However, the consultancy expects supercenters and warehouse clubs to post a fairly robust 8.0% holiday increase by attracting middle-income consumers with discounts and one-stop shopping.

Conventional and national department stores should increase holiday sales by 2.0% vs. last year's 4.5% jump, according to Retail Forward.

Retail Forward also expects the consumer-direct channel, led by online sales, to have the most robust performance this holiday. The consultancy predicts an 18.5% gain on top of last year's 24.3% holiday boost.

Mary Brett Whitfield, Retail Forward's svp focused on soft goods, also warned Black Friday — the official start of the holiday shopping season — could be softer than usual because it falls on the earliest date possible this year (Nov. 23).

National Retail Federation and Retail Forward each will be polling consumers in advance of and during the holiday sales period to update expectations.