It Could Be Worse

In the last year, I don’t think any position in retail was more difficult than that of company buyers, who were making holiday decisions in March or April in the midst of so much economic uncertainty. As we were finalizing NRF’s holiday forecast in October, wrestling with how the next three months would play out, I was frequently reminded how tough it would have been to make these decisions even a few months earlier.

Each year, determining our holiday forecast requires a mix of art and science. First, we look at key economic indicators like unemployment, the stock market, housing, energy prices and past months of retail sales. We also speculate about the unknowns: potential pent-up demand among shoppers, how key economic indicators may change over the next few months and, of course, deflation in popular gift-giving categories.

This year, NRF is expecting holiday sales to decline 1 percent to $438 billion. On the one hand, that’s nowhere near the gains retailers see in a typical holiday, but it is far better than both last year’s 3.4 percent decline and an expected 3.0 percent sales drop for this year. While the 2009 holiday season isn’t going to be spectacular, it could be worse. It has been worse.

The silver lining, if there is one, is that retailers are prepared. Unlike last year, when the economy took a nosedive right before the holidays, retailers have had the entire year to plan. They have scaled back dramatically on inventory and are cutting back substantially on seasonal hires. Companies will also try to entice shoppers with price cuts on lower-ticket items (like Wal-Mart’s 100 toys for $10) instead of laptops or flat-screen TVs. In addition, retailers have gotten creative in stretching marketing dollars, which is why nearly half say they’ll focus more on Twitter and Facebook this holiday season.

Consumers have planned ahead, too. Many started shopping earlier to spread out spending, and others are planning to invest more time looking for the best prices and deals. From a gift-giving standpoint, shoppers are focused on practical, joint or homemade gifts. For further proof that it’s the holiday season of the serious bargain hunter, two-thirds of Americans are planning to make at least one holiday purchase from a discounter, and one in 10 will buy from a thrift store.

Though we are fairly confident in our holiday forecast, we are holding out hope for a fourth-quarter surprise. If people return to the stores in unexpected numbers, if pent-up demand boosts sales or if the unemployment situation begins to turn around, retailers may see a merrier Christmas. Until then, companies are continuing to do more with less, being as creative as possible and staying keenly focused on their priorities so that when the recession is behind us, they’ll be just as ready as the American shopper to bounce back.