Retailers twice shy about holiday season

NEW YORK Wed Jun 29, 2011 9:40am EDT

Rio Nguyen, 8, poses for photographers at Hamleys toy store with a Sesame Street Elmo doll in London June 28, 2011. REUTERS/Paul Hackett

Rio Nguyen, 8, poses for photographers at Hamleys toy store with a Sesame Street Elmo doll in London June 28, 2011.

Credit: Reuters/Paul Hackett

NEW YORK (Reuters) - Retailers, bitten by over-optimism last holiday season, are planning conservatively for the coming season in order to limit profit-sapping discounts on unsold merchandise come January.

Retail executives gathered this week in New York for the Reuters Retail and Consumer Summit said spending was improving, particularly at higher-end stores catering to well-heeled consumers emboldened by a better stock market.

Still, they said they did not want a repeat of last year, when a flurry of shopping early in the season and hopes for an economic recovery led some chains to take on more inventory, only to get stuck when demand later ebbed.

"It's only common sense to be cautious, given the uncertain outlook for the economy," said Toys R Us TOY.UL Chief Executive Jerry Storch. "My belief is that many retailers ended up with too much inventory last Christmas. They were kind of fooled by false optimism that the economy had already recovered."

Still, Storch said the world's largest toy retailer was planning for higher same-store sales in the holiday quarter, by far its biggest, like it usually does.

Leapfrog Enterprises Inc (LF.N) CEO John Barbour said optimism for the retail industry has not been justified by any significant reduction in unemployment or improvement in people's quality of life.

"There's nothing that I've seen on my horizon that convinces me that this year is going to be spectacularly better," Barbour said. "Maybe an inch or so better. To me the trends are continuing with some level of growth, but a very slow level of growth."

The International Council of Shopping Centers expects same-store sales at chains it tracks to rise about 3.5 percent for the year, with sales during the holiday season in a similar range.

Michael Niemira, the group's chief economist, said 3 percent growth was a "likely starting point" when thinking about growth for the holiday season, even though spending could get a boost from an easing of gasoline prices and job growth.

"I don't think it will be dramatically more growth. I don't think the sales will be dramatically stronger either," Niemira said. "The industry was a lot stronger in the beginning part of the year, and it's a continuation of a slower trend."

Holiday sales for November and December rose 3.8 percent last year, according to ICSC.

LOOKING FOR DEALS

The year-end holiday shopping season, the most important period for retailers, has traditionally marked its unofficial start on "Black Friday" -- the day after the U.S. Thanksgiving holiday in late November when stores open early and offer deep discounts.

But consumers are looking for those deals earlier, said Bill Tancer, general manager of global research at Experian Marketing Services. That gives them more time before Christmas to find the best prices, a trend that does not bode well for retailers' profits.

Internet searches for "Black Friday" started in the first week of November in 2009 and in the week ended October 23 in 2010, Tancer said. He predicts they will start in early- to mid-October this year.

"It's become a phenomenon, like couponing. We're all expecting a deal and we're going to start searching for it sooner," Tancer said.

Based on what Tancer, who tracks Internet searches, has seen so far this year, he expects the holiday season to be "on par" with last year.

Brian Goldner, chief executive of toy maker Hasbro Inc (HAS.O), said he was relying on the appeal of new products such as Kre-O building sets, based on Transformers characters, to drive sales ahead of the holiday season, rather than any real increase in consumer sentiment or spending.

And for apparel retailers like Children's Place Retail Stores Inc (PLCE.O) -- which are being forced to raise prices on products to offset higher costs for commodities like cotton -- the holiday season will be difficult.

"(With) the pressure on fuel and the pressure on food, (our core customer) has to make a lot of choices right now. They're already struggling," said Children's Place CEO Jane Elfers, citing weakness in the credit and housing markets.

"When the real apparel inflation hits, in back-to-school and into holiday (seasons), she's going to have to be further pressed to make those choices," Elfers said.

(Reporting by Martinne Geller; editing by John Wallace)