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Holiday Shopping Season Forecast Looks Grim

As the holiday shopping season fast approaches, predictions abound regarding its success or failure. At least one major forecaster expects disappointment, potentially the worst season since 2009.

ShopperTrak predicts that retail sales for this coming November and December will inch up a meager 2.4%, a drop from last year’s 3 percent increase and the 4 percent increases of both 2010 and 2011. These conclusions are based on a wide-ranging statistical analysis of store traffic at more than 60,000 locations.

ShopperTrak’s founder Bill Martin cited a number of factors for the forthcoming malaise, including rising interest rates, congressional infighting over the national budget, uncertainty regarding U.S. involvement in Syria and a bevy of macroeconomic indicators. “It’s got people feeling more tenuous about the holiday season, “ said Martin.

According to Sears CEO Eddie Lampert, “As people are spending more money on their cars and homes, they are cutting back elsewhere, such as their spending on items like clothes and shoes.”

Consumers have noticed that currently low interests rates have been steadily rising over the last few months and, in anticipating of further increases, are focusing their attention on larger purchases that would require a loan. Erich Patten, a manager at Cutler Investment Group LLC, observed, “Consumers recognize that financed purchases will be more expensive with rising rates, and thus are prioritizing them in the current economy. Demand for soft goods will return as interest rates rise and purchasing patterns normalize.”

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At least for the short term, and this includes the important holiday shopping season, consumers are expected to to spend more on housing, automobiles and major appliances. According to poll issued Ipsos Research, 26 percent of US shoppers plan to spend considerably less on clothing this holiday season that typical and a meager 12 percent intend to spend more.

Contributing to consumer wariness are increases in payroll taxes and the rising cost of gas. Alison Paul, vice chairman at Deloitte LLP, explains, “You can’t get out of paying your taxes and you have to have gas to go to work and school. Those are real numbers that really do impact real Americans, and I think that’s where other discretionary spend takes a hit.”

While this trend bodes well for home improvement chains that rely upon appliance sales, like Home Depot and Lowe’s, it spells trouble for apparel retailers like Macy’s, Wal-Mart, Kohl’s and Target, all of whom posted weak second quarter numbers.

Shawn Kravetz, president of Esplanade Capital, said, “We’re not saying run away from apparel. We’re saying you have to make sure it really looks good on you. Investors just have to be choosier than ever because it has gotten very messy and very challenging very quickly.”

And it’s not just consumers that are increasingly cautious. More and more hedge funds are moving out of the apparel retail sector in search of firmer ground, mostly healthcare, technology and telecoms.

Patty Edwards, chief investment officer of Trutina Financial, placed some of the blame on the fashion industry itself. “The problem now is that there is no fashion, and if there is no newness, clothing becomes a commodity. Beyond a select few, I’d think twice about getting into apparel and retail stocks.”

However, many experts are more optimistic. Alix Partners, a consulting firm, predicts a more robust holiday shopping season, with a 4.1% to 4.9% uptick. The key difference between Alix and ShopperTrak is methodological; Alix operates on the calculated assumption that approximately 66 percent of all annual retail sales will have occurred by the end of August and also assesses a wider range of data.

Joel Bines, managing partnerof Alix, said, “People have turned predicting holiday sales into a cottage industry. You don’t need all the fancy math or statistical surveys.”

Other industry insiders treat predictions in general with a dollop of wariness. Brett Conrad, managing partner of Longboard Capital Advisors, said, “I don’t lend a lot of credence to these estimates, because they weigh heavily on historical numbers and I think it’s more important to look at what trends are in place going forward.”

ShopperTrak’s own record making predictions is less than pristine. In 2012, it forecast a 2.5% increase in retail sales, while the actual rise was 3 percent. In 2011, it predicted a 3 percent jump, and the actual increase was 4 percent.