Electronics in, clothes out for holiday sales

By Brad Dorfman

CHICAGO (Reuters) - Electronics are in, women's clothes are out and leather handbags and jewelry are on the fence heading into next week's unofficial start to the 2007 holiday season.

U.S. consumers are struggling with soaring fuel and food costs and the falling housing sector. At the same time, there are few, if any, must-have items getting shoppers excited.

"There aren't a lot of segments in the retail sector that are poised to have a good holiday season," said Ken Perkins, president of research firm Retail Metrics.

Many consumers think a recession could be looming, according to a recent survey by America's Research Group. And analysts and investors are closely watching the holiday season to see whether those fears prove out.

"In our view, the consumer is on the precipice of experiencing its first recessionary phase since 1991," David Rosenberg, North American economist at Merrill Lynch said in a research note earlier this month.

LESS LUXURIOUS

Even the luxury segment, once deemed immune to the economic issues that haunt the masses, has started to show some cracks.

Leather goods seller Coach Inc warned about weak traffic in its U.S. stores in October and upscale department store chain Nordstrom Inc posted an unexpected drop in same-store sales in October.

While luxury retailers will probably fare better than others, "we expect some impact across all price points because part of the recent spending boom was financed with consumer mortgages that were made possible by rising real estate prices," credit rating agency Moody's Investors Service said in a recent report.

As one way to counter this, Coach is trying to boost its standing as a gift destination, offering more entry-level items and gifts like scarves and key chains.

On the jewelry side, Zale Corp, which is trying to reinvigorate its core mall-based stores, could still lose critical share this holiday season, Goldman Sachs analyst Adrianne Shapira said.

But farther up the diamond scale, Tiffany & Co should fare well, helped in part by its international business, one analyst said.

"We see the company as (a) strong and even safer play on the more sheltered high-end consumer, high international portion in its mix also a plus. Put Tiffany on your holiday list," says CIBC analyst Dorothy Lakner in a research note.

Also on the good list could be Best Buy Co Inc, helped by continued demand for hot electronics products such as high-definition televisions, video games and iPods, analysts said.

Meanwhile, rival electronics retailer Circuit City Stores Inc is going through an overhaul, cutting costs as it restructures its business, and recently announced that its merchandising and marketing executive vice president was leaving the company.