Housing Market Colors Holiday Retail Sales Forecast

It's bad enough that retailers encroach on Halloween by putting up Christmas trees in October. Now the industry is sounding like Scrooge, too, with its early economic forecast for the season.

The National Retail Federation predicts total holiday retail sales will rise just 5 percent from last year, with consumers spending $457.4 billion. The prior year's sales of $435.6 billion had been a much sturdier bump of 6.1 percent.

Retail Forward, a market research firm, predicts a slightly more upbeat gain of 5.5 percent.

While the growth is still respectable (the average gain over the last 10 years has been 4.6 percent, according to NRF), retailers were still hoping for more.

The problem, says Richard Hastings, an analyst with Bernard Sands, "is that the residential housing market stinks."

So although cooling weather and lower gasoline prices are likely to give back-to-school sales a second-half bounce, "holiday spending is more discretionary than back-to-school, and the housing market is wearing people down," says Hastings. He suspects that holiday sales may be even more modest than the NRF's predictions.



"While housing prices affect consumer spending more slowly, the effect is more profound," Hastings says.

No matter what the increase, it's a critical time for retailers: Consumers typically make 19.9 percent of retail purchases during the holiday season.

Not depressed yet? You will be, considering your gift is a lot more likely to come from Sam's Club than Bergdorf Goodman.

"The mass channels, particularly supercenters and warehouse clubs, should remain among the growth leaders while the softgoods channels will continue to lag, held back by conventional department stores in particular," predicts Retail Forward.

Of course, there will be bright spots: Online spending, which reached $30.1 billion during the 2005 holiday season, according to a survey by Goldman Sachs, is expected to be robust again this year.

And Best Buy has said it expects consumer demand and falling prices to create a continued stampede for flat-screen TVs, even as sales of MP3 players cool off.

There's no doubt, however, that a certain Muppet of mystery will be having the last laugh come December.

Yesterday, Mattel's Fisher-Price finally unveiled T.M.X. Elmo, which the company has said is the "most closely guarded secret in the history of plush toys."

Ten years after his introduction, Elmo is still ticklish. But this year's model actually slaps his knee, falls to the ground, and pounds the floor. Insiders promise that "it will make you laugh 'til you cry."

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