Firm Predicts Holiday Sales to Rise at Slower Pace Than Inflation

Holiday retail sales will increase 0.5% to 1.0%, which, lagging the core inflation rate of 2.6%, represents a significant contraction in real terms, according to Archstone Consulting.

“Our research and modeling shows that retailers and manufacturers are bracing for the toughest holiday sales period since 2001, and perhaps since the ‘Volcker recession’ of 1981,” stated Todd Lavieri, president and CEO of Archstone Consulting, Stamford, Conn. “Our retail and manufacturing clients are seeing almost an aversion to consumption. Even incremental drivers of holiday spending, like the wave of foreign buyers that we have seen over the past four years driven by a weak U.S. dollar, won’t be there this year.”

In its “2008 Holiday Gift Card Survey,” Archstone found that restaurant/fast-food gift cards will be the most purchased cards this season, followed by pre-paid bank cards that have the flexibility to be used almost universally.

Retailers are already very concerned about the holiday season and are preparing early discounts, pulling back on temporary staff and, in some cases, closing underperforming stores. “Retailers will get hit by lower consumer spending and higher borrowing costs to finance inventory,” said Dave Sievers, leader of Archstone’s Consumer Products and Retail practice. “The pressure for early and aggressive discounting will drive down profitability and cash flow pushing some retailers on the edge closer to bankruptcy.” We may see a restructuring of underperforming retail markets following this holiday season.”

Luxury retailers will also be soft, particularly in New York with Wall Street bonus payouts expected to be 50% to 75% less than last year, coupled with significant layoffs in the financial-services sector.

“Last year New York benefited from the tourist trade,” said Sievers, “however, this year the stronger dollar and economic troubles at home will keep the European and Asian tourists away.”