Holiday Spending May Rise but Not Enough to Make Retailers Merry

West Lafayette, Ind., Retail sales are expected to be about 4% more this holiday season than last year, but for every dollar spent on fuel, one dollar less is spent on the holiday, according to Richard Feinberg, a researcher with the Purdue Retail Institute and director of the Center for Customer-Driven Quality.

"Fuel prices are just like a tax on consumer spending," Feinberg said. "This is not good news for retailers who have had higher costs and will have greater promotional expenses as they spend more money trying to get people into the stores."

Home heating oil is expected to go up 25% or more this season, which also will leave consumers with less disposable income to spend if temperatures drop in November, Feinberg said.

Feinberg estimates retail holiday sales in the United States will be $475 billion to $500 billion in 2007. Data indicates that holiday sales of apparel will increase only 3% over last year and electronics sales will rise 5% above last year. Consumer electronics, jewelry, video games/CDs/DVDs and clothing are expected to be the most popular categories for spending.

Big discounts and sales, while good for consumers, may not be good for retailers because a 4% sales increase may not mean a 4% increase in profitability, he said. If retailers begin to worry that they will not make their expected numbers, they will reduce prices even more, which will disproportionately affect profits.

More common this year, Feinberg said, will be coupons at point of purchase that are designed to get consumers back in the store during a specified time.

Since Christmas is on a Tuesday, Feinberg said the biggest shopping day of the year will likely be Dec. 22, the Saturday before Christmas.