Retailers and the Holiday Outlook

Nov. 21, 2005

A recently released issue of Themes on the Economy, a monthly economic newsletter written by Diane C. Swonk, chief economist and senior managing director at Chicago-based Mesirow Financial, offers an interesting shopper/retailer perspective about this month’s holiday season in the following edited excerpt:

Perhaps you are taking mass transit instead of driving to work. Maybe you are renting DVDs instead of going to the movie theater. Or, you plan to turn the thermostat down a notch or two this winter. The point is that you are reacting to higher energy prices, and it is those reactions that will determine not only what, but how and where, you’ll spend this holiday season.

Middle- and low-income households will become more price-sensitive as they seek to limit the impact that rising debt burdens and higher energy costs have on their holiday budgets. High-income households, however, are expected to largely ignore prices at the pump and higher heating bills as they continue to spend with abandon. The result is a doughnut-shaped economy, with spending concentrated at discounters and luxury retailers and hollowed out of traditional department stores.

Total retail sales are forecasted to rise 5.7 percent from a year ago in November and December. General merchandise and apparel store sales, which more closely track gift-buying decisions, are expected to hold up slightly better and rise 6 percent from a year ago. [Because of the earlier-mentioned crimps], shoppers are expected to make more trade-offs in their spending decisions:

  • Shopping more at discounters and warehouse clubs than traditional department stores.
  • Purchasing gift cards instead of actual gifts, which allows recipients more choice and an edge at getting their gifts during the after-holiday sales.
  • Spending on consumer electronics and games instead of movie tickets and sporting events, as home-bound consumers try to enhance home entertainment systems.
  • Making fewer trips to the store to conserve gas; this will also limit the chances for retailers to lure shoppers to their stores.
  • Taking fewer and cheaper vacations to less-expensive destinations with smaller and lower-priced hotels.

The exception is wealthy households, which are expected to continue to ignore high energy prices ... [buying] designer fashions, high-end jewelry, and exotic vacations.

The result to the retail industry? Winners of the season will include luxury retailers, niche designer stores, and - to a lesser extent - discount retailers. Losers will be traditional department stores.

This and other issues of Themes on the Economy can be found at (

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