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Wednesday, Feb 8, 2023

Storms, War, Oil? Santa Doesn’t Care

If retailers were to draw up a nightmare scenario for the holiday shopping season, it might include a hurricane, flooding, war and soaring gas prices.

That’s no nightmare, but today’s unpleasant reality. And just to affirm the nervousness, a Field Poll released last week found that among those Californians making less than $40,000 a year, 54 percent said they were cutting back on spending for food, clothing and dining out because of having to pay more at the pump.

But some local retailers and analysts remain cautiously optimistic that the worst will pass before Christmas and people will once again be in a shopping mood.

“The expectation is that the holiday season of ’05 is going to be just as good, if not better, than ’04,” said Al Frank, partner in charge of the consumer business practice at Deloitte & Touche LLP.

Frank predicts that retail sales will be up 3 percent to 4 percent, based on the belief that many of today’s problems are temporary and mostly localized to the Gulf Coast states. He also cites still low unemployment, strong August same-store retail sales and a decent back-to-school shopping season, all things considered.

If Frank is on target, merchants should be satisfied, though not necessarily thrilled with retail’s most important time of the year. Last year, fourth-quarter retail sales jumped 6.5 percent for the second year in a row, according to Retail Forward Inc. and the U.S. Department of Commerce.

Of course, it’s still early. With more than two months before the holiday shopping season really gets going, many retailers and analysts are holding back from making pronouncements until they get a better read on the climate.

The National Retail Federation doesn’t plan to release its forecast until late September, though it is closely monitoring retail sales as gas prices rise. “It is too soon right now to come up with a holiday forecast for the entire season,” said spokeswoman Ellen Tolley Davis.

Gas Prices

With gas topping $3 per gallon at many stations, the fear is that shoppers won’t have enough money to plunk down for the latest electronics and fashions. That concern is especially acute at discount retailers who rely on lower-income customers being squeezed the most by high fuel costs.

So far, though, Davis said retailers haven’t seen a widespread slowdown. She contends that back-to-school shopping, while slipping nationwide from last year, was hurt more by a drop in electronics consumption, which had surged over the last few years when IPods and other new products were being introduced. “This goes back to the mentality that consumers spend when it is important to them,” she said.

If retailers don’t meet their sales projections, Frank said they might blame high pump prices, even though poor merchandise may really be the problem. “A lot of people are going to be using it as an excuse,” he warned.

That said, retailers are still being hurt on the operations side, in the form of higher transportation costs.

At Agoura Hills-based clothing retailer M. Fredric & Co. Inc., co-owner Fred Levine said that store deliveries of new products have been reduced to three days a week from five. “We always react, whether it is a gas crisis like this (or something else.) Our staff is going to be pretty overwhelmed three days a week,” he said.

To get a clearer idea about the holiday outlook, retailers and analysts will watch what shoppers do over the Labor Day holiday. If there’s heavy traffic, it could mean that people won’t be deterred from spending, assuming the news doesn’t sour even more.

“Are they going to go shopping, or are they going to stay there and watch CNN?” wondered Frank. “It is a good bet that people are going to go shopping.”

Sales sign

There is at least one welcome sign heading into the holiday season: specialty clothing retailers have shown positive same-store sales growth in recent months.

Oren Hayun, a principal at Los Angeles-based HFI Corp., the parent company of the 13-store Planet Funk clothing chain, said stores are on track to record a double-digit same-store sales jump.

“There is nothing really that we are concerned about. We have some pretty positive strong projections for this holiday season, and we plan to make those projections,” said Hayun.

Those kinds of results have been seen across the nation.

New Albany, Ohio-based Abercrombie & Fitch Co. posted a 24 percent same-store sales leap in August over the like period last year; Foothill Ranch-based Wet Seal Inc. had a 48.3 percent increase in same-store sales; Warrendale, Penn.-based American Eagle Outfitters Inc. reported an 11.8 percent jump; and Los Angeles-based Guess Inc. saw same-store sales grow 6.4 percent.

Even so, the back-to-school season was mixed. The retail federation estimated that U.S. back-to-school spending was down 8 percent this year from last year, while back-to-college spending was up 34 percent.

Predicting holiday season sales based on back-to-school numbers can be tricky, however. “I don’t know that you can take that much from back to school in terms of a sales forecast, especially this year,” said Davis.

But retailers can learn about consumer tastes from back-to-school purchases and can adjust their product assortment accordingly.

At Politix, a Beverly Center clothing store owned by Van Nuys-based Moba Inc., vice president and merchandising director Elie Kevorkian said that jeans have been the hot item, and the store has expanded its denim section to capitalize on the trend.

“I am trying to bring in more denim brands that no one has,” he said, adding the move has helped push sales up 60 percent this year over last, about 20 percent higher than expected.

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