Lower holiday spending challenges retailers to tweak and trim

Retailers have just started what may prove to be one of the most challenging holiday seasons in years. The National Retail Federation has predicted this year's holiday retail sales will rise just 4%, below the 10-year average of 4.8%.

“Retailers are in for a somewhat challenging holiday season as consumers are faced with numerous economic obstacles,” said NRF Chief Economist Rosalind Wells. “With the weak housing market and current credit crunch, consumers will be forced to be more prudent with their holiday spending.” Like most analysts, the NRF's holiday outlook notes a still-strong luxury market and predicts the retailers most affected will be those catering to the low to middle income consumer.

In response, many retailers are planning to fuel the sales of tweaked and trimmed inventories with a flurry of promotions and discounting. Sixty-four percent of retail marketing executives surveyed in October said they're exercising more caution in their sales and inventory planning this season. These are among the findings from the BDO Seidman Retail Compass Survey of CMOs, an annual survey of chief marketing officers from leading U.S. retailers. Expressing a bit more optimism than the NRF, BDO Seidman's respondents forecast an overall increase in same store sales of 5.03%, one point higher than the NRF's number but less than the 7.8% predicted by the same group last year.

When asked to rank the issues impacting those numbers, feelings were mixed. Most of the CMOs surveyed predict credit concerns to be the No. 1 issue affecting sales this season, 22% said it is high energy costs, and 17% blame the weak housing market. Another 15% expect sales to be impacted heavily by product safety issues and, as a result, 26% have begun focusing more marketing efforts on American-made products.

Among smaller retailers, the concern is the big guys. Almost half (49%) of the 2,000 small business owners surveyed by consulting company Constant Contact for its annual Small Business Holiday Outlook see large retailers as the No. 1 threat to sales. Credit concerns rank second (27%) among the group, housing is third (18%) and high energy costs fourth (16%).

More than a third of the CMOs said they're increasing their marketing focus on green products this year, something smaller retailers are doing as well.

Homeward Bound, a New England lifestyle store with three locations in Massachusetts and Connecticut, is supplementing its large selection of naturally-made environmentally-friendly toys this year with green gift ideas for adults. Homeward Bound's nature-inspired collection includes bird-themed gifts, animal-inspired designs and collectibles from India and South Africa. Co-owner Kathy Walsh said the store's passion for green living also extends into product lines such as beeswax candles and Homeward Bound's exclusive “live edge” designs, which give a rough, fresh-cut look to the edges of wood accent pieces and shelving.

Over on the West Coast, “retired” retailer Tara Riceberg may have found one way to minimize risk by creating a temporary boutique that caters to the strong high-end shopping segment.

Riceberg spent years working alongside her mother in their Beverly Hills store, Tesoro. After the store closed in 2004, Riceberg launched her home styling business, Tweak, but found that the retailer in her just wouldn't die. So she put a merchandising idea into motion and landed at Saks Fifth Avenue Beverly Hills with Tweak's holiday selection of pre-wrapped gifts, organized by price for quick and easy holiday shopping.

“It was fantastic to merchandise by price point. You see this a lot on Web sites but rarely in stores,” she said. In 2005 she did it in two more retail locations in Beverly Hills and West Hollywood.

Several months ago, a friend suggested Riceberg give it another go. She was pondering the idea as she drove past her old store location, now subdivided into three shops and sporting a For Lease sign. “I parked and ran upstairs to say hello to my old landlord. Next thing you know, I'm opening up Tweak Holiday Boutique. I had just three weeks to build out, order, stock and pre-wrap, but I made it – and opened for business in October.”

Riceberg markets with “Tweakly” e-mails and is open each morning by 8 a.m. “It's all about convenience and making gift shopping easier, especially for those you buy for but don't know very well – the manicurist, dog walker, doctor, teacher, your spouse's business associates,” she said.

Tweak Boutique also stocks one-of-a-kind items for those who enjoy browsing for special, more expensive items. And Riceberg, who found herself missing the buzz of the holiday season, gets to return to retailing for a quick fix during the most profitable time of the year.

To comment on this story, please write to me at susan.dickenson@reedbusiness.com or share your thoughts on my blog at homeaccentstoday.com.