The National Retail Federation released its annual holiday forecast on Tuesday and the news was not good. The NRF projected sales gains of just over 2% for November and December, exactly half the 10-year average of 4.4% holiday sales growth. The meager gain is also the smallest rise since 2002, when sales increased only 1.3%. Frankly, after listening to President Bush’s dire warning on the state of the US economy on Wednesday evening, I’m surprised that even a 2% increase is in the cards.
The pain will be widespread. While rising food and gas prices have already taken a toll on lower-income consumers, the crisis on Wall Street threatens to pull the plug on the luxury-goods market as the bonuses and brokerage accounts of the more affluent are diminished.
Merchants with a big New York presence are in double trouble. Upscale department store chain Saks, which generates more than 20% of its annual sales from its flagship Fifth Avenue store, and Tiffany up the street are particularly vulnerable as they rely on wealthy New Yorkers and tourists. Indeed, jewelry stores are the most vulnerable of retailers as they log about 30% of their annual sales during the holidays. While diamonds and pearls are nice gifts, they are among the most discretionary of items. Young women, who make up the majority of the seasonal retail workforce, are also less likely to find employment this year as retailers curtail hiring in expectation of a slow season.
If the NRF’s 2.2% projection is on target, 2008 holiday sales will be in the neighborhood of $420 billion. Why that’s not even enough to cover Henry Paulson’s bailout of Wall Street!
While many jewelry stores will be hit hard, others will likely do quite well. In a sliding economy consumers become more value-conscious. While demand for luxury goods will fall, the need will always remain. Those that do shop will do so wisely. Retail jewelers will feel the pain while discount sellers like Blue Nile will remain fat and happy.