For the first time in more than 10 years, experts expect holiday sales to decline versus the previous year. "I don't see how we're going to have growth even if we wanted to — there's just not enough inventory to go around," says Marshal Cohen, chief industry analyst for research firm NPD Group. "The holiday is already over." Between tight inventories, premature discounting, and no new must-have items (à la 2007's GPS devices), Cohen predicts that sales will drop by about 2 percent.
A roundup of predictions based on October surveys and data shows that many share his view. The best-case scenario, according to Standard & Poor's, would be no change over last year's $255 billion in November-December sales. More likely, the company says, is a 2 percent drop, compared with an average 4.4 percent per year gain over the last 10 years.
Even retailers have accepted the upcoming declines. "This is as gloomy a forecast as I've seen in the 20 years I've been in retail," says Rolando de Aguiar, CFO of teen-clothing retailer Tween Brands. He is relying on "a combination of promotional programs and tight inventory control" to get the company through the period, and he's not alone. Chief marketing officers from leading U.S. retailers surveyed by BDO Seidman in October foresaw an average drop of 2.7 percent in same-store sales over the year-end holiday season, and 88 percent expect to offer more discounts and promotions (mostly in-store), up from 73 percent last year.
A few companies remain optimistic. Sony expects its PlayStation sales to hit targets set in July, and Deckers Outdoor Corp., the maker of UGG boots, actually raised guidance, projecting 2008 sales to increase by 52 percent over 2007 instead of 43 percent. Still, most companies, even those with popular products, are taking a more conservative line. Video-game maker Electronic Arts lowered its EPS guidance for 2008 by 30 cents a share, based in part on lower expectations for holiday spending.
Where do consumers plan to cut spending?
1. Dining out, 57%
2. Apparel, 54%
3. Beauty, 44%
4. Toys, 39%
5. Video games, 35%
Source: NPD Group; select answers from an October survey of 2,000 adults