Fred Harteis News Articles - Holiday 2006: Retail winners and losers

Fred Harteis News articles - The recent drop in gas prices has given a needed boost to shoppers ahead of the holidays but retail experts aren't convinced that will translate into big sales gains for store chains.

Frank Badillo, senior economist with market research and consulting firm Retail Forward, thinks the upcoming holiday shopping season will be "good" but "not great."

The holidays are crucial for retailers since November and December often provide 50 percent or more of merchants' annual sales and profits.

Badillo expects fourth-quarter holiday sales to grow about 5.5 percent this year, slower than the 7 percent growth seen in the previous two holiday seasons, according to Retail Forward's estimates.

One bright spot? Online sales, where growth is expected to sizzle.

He delivered his forecast Wednesday during a Web cast of Retail Forward's holiday outlook.

For its part, the National Retail Federation (NRF), the industry's largest trade group, said it expects holiday sales to be "subdued" this year, forecasting a gain of 5 percent to $457.4 billion, which would fall short of last year's 6.1 increase.

Despite the summer surge in gas prices above $3 a gallon, retail sales have held up relatively well so far this year.

The subsequent drop at the pump should only help to "sustain the healthy pace of sales and especially the low-income shoppers," he said.

But gas prices are only the first of the trifecta of potential risks threatening consumer spending, with the softening housing market and higher interest rates still very much in play.

"Housing is the more immediate drag. The big unknown is how deep the housing slowdown will be," Badillo said.

In this environment, home improvement retailers become an immediate casualty, he said.

To his point, both Home Depot and Lowe's warned recently that their full-year results, blaming the housing-related spending slowdown.

While high debt loads and higher interest rates are making consumers more cautious, economists warn that the housing market could be a bigger problem down the road.

For years rising home values made consumers feel wealthier, acting as a bulwark against rising energy prices. When interest rates were falling and home prices were rising, Americans quickly refinanced their mortgages at lower rates, effectively turning their homes into piggy banks, and tapping into them for cash.

All that has changed.

"Longer-term, consumer prices are important too," Badillo said. "Government data shows core inflation is creeping up. If that trend continues, it will put pressure on the Federal Reserve to possibly increase rates further."

Source: Cnn.com

About Fred Harteis: Fred Harteis leads Harteis International. Fred Harteis has a background in agriculture and has created many successful business ventures.