Archstone Consulting's 5th Annual 2009 Holiday Forecast Projects Holiday Retail Sales to Be Down by 1%

October 5, 2009 7:00 AM EDT

Forecasting the first Back to Back contraction in 40 years of Data Tracking

STAMFORD, Conn.--(BUSINESS WIRE)-- Archstone Consulting, a leading management strategy and operations consultancy, today announced it is forecasting 2009 Holiday retail sales will decline by 1.0% compared with the 2008 Holiday season (which saw a -2.8% decline compared with 2007). This will represent the first back to back decline in Holiday retail sales in the last four decades (according to U.S. census data for retail sales) and is a somber reflection of continued challenging economic times.

    --  "In the last 40 years, the U.S. economy has faced seven official
        recessions. Each recession has had a profound dampening impact on
        holiday retail sales during and immediately following the recession,"
        commented ToddLavieri, President and CEO of Archstone Consulting."While
        the economy is slowly emerging from this terrible recession, the
        confluence of tightening credit (for many retailers and consumers),
        higher unemployment, and continued financial uncertainty in terms of
        jobs and income will bring caution to the consumer and lower holiday
        sales."

Lavieri continued: "With 7 million fewer people employed in the US this holiday season compared to 2008, many consumers will remain under considerable financial stress and will stay frugal."

Key Influencers Affecting 2009 Holiday Retail Sales:

Archstone's modeling and research assessed the impact of a range of macroeconomic factors as well as recent consumer behavior and classified them as having a significant, moderate, or minimal impact on 2009 holiday retail sales growth:

Influencers on 2009 Holiday Retail Sales

Significant Impact        Moderate Impact       Minimal Impact

Personal Credit           Consumer Confidence   Foreign Investment

Savings Rate              Housing Market        Cash for Clunkers ( Appliances)

Unemployment                                    Inflation

Wages                                           Stimulus Impact

Retail Inventory Levels                         Stock Market

Changes in Consumer

Shopping Behavior

Availability of personal credit

    --  "Tight restrictions on consumer credit means many consumers are simply
        unable to buy on credit as they had prior to the financial crisis.
        Tightened consumer credit will continue to negatively impact overall
        holiday sales," commented Dave Sievers, Principal and the Consumer
        Products and Retail Practice lead at Archstone Consulting.
        o In reaction to recent credit card legislation (which takes effect
          February 2010), credit card companies have clamped down by raising
          rates and fees and even canceling cards.
        o Consumer credit (loans and credit cards) fell by a record $21.6
          billion in July to $2.5 trillion.

Savings rate

    --  "Whether the new higher savings rate relative to last year is the "new
        normal" is questionable. However, given strains on the American
        consumer, it looks like it's here to stay at least through the end of
        the year as people repair their personal balance sheets, and rebuild
        their net wealth," commented Sievers. "These savings are unlikely to now
        be spent for gifts."
        o In July, the personal savings rate dipped slightly to 4.2% from a
          record high of 4.5% in June but it is still high, compared to a 2.6%
          savings rate vs. a year ago.

Unemployment

• "Unemployment and nagging job insecurity will limit both the ability and willingness to spend and will have a significant impact on dampening holiday retail sales," commented Lavieri.
• US unemployment at 9.7% reported in August is the highest it's been in decades and is expected to hover at that level for the rest of the year and well into 2010.
• Overall US Civilian employment declined to 59.2% of the population in August 2009; down from 61.9% in September 2008.

Wages

    --  "Falling wages and high unemployment are two sides of the same coin as a
        dampening effect on holiday retail sales with households struggling with
        spending priorities and personal balance sheets," commented Sievers.
        o Wages and unemployment are inversely correlated, and we've seen wages
          plummet 4.1% in August vs. a year ago, matching the decline seen in Q2
          2009.

Retail inventory levels

    --  "Retailers are being very conservative and will keep inventory levels
        tight this season in an attempt to avoid the discounting bloodbath of
        last year. We've seen this manifested in trends in inbound cargo (a
        proxy for retail inventory) which is at its lowest level in at least
        seven years (down ~20% from peak 2007 levels)," commented Lavieri. "That
        will mean fewer sizes, styles and colors at the retail shelf. Further,
        credit availability for retail inventory builds has been tighter.
        De-stocking of retail inventory has followed de-leveraging of retail
        balance sheets. With fewer items to sell, and pricing still under
        pressure, sales will be unable to grow. Additionally, we have seen
        hundreds of small, local retailers across the country close their doors
        this past year, thus taking some of the smaller, impulse purchases out
        of the equation this season."

    --  "In addition to cutting inventory, retailers will be lowering "in store"
        merchandising costs this season. That will mean less labor helping
        customers and keeping store merchandise appealing and available,"
        continued Lavieri.
    --  One big wildcard in the retail numbers will be H1N1 - if it is pervasive
        during the Holiday shopping weeks, traffic will be diverted from stores
        to on-line.

Consumer behavior

    --  "We have seen significant changes in shopping behavior as sales data
        show the trend of trading down to discounters continues to prevail at
        the expense of continued losses in higher end stores. Indeed, value
        retailers such as Toys R US and TJMaxxmay be examples of the few bright
        spots in retail,"commented Sievers. "The Toys R US strategy to add store
        fronts in unused retail space for the Holiday season is an excellent
        market share move," added Sievers. "They have shown nimbleness and
        aggressiveness that should help them add to their Holiday numbers."
    --  "In response to a more frugal consumer, retailers will continue to push
        value this season," continued Sievers.
        o Overall same store sales in August showed a slight uptick, the first
          in the last 6 months. NOTE: Wal-Mart no longer reports out monthly
          same store sales and is not reflected in these numbers.
        o Back to school sales (the second largest retail "season" next to
          holiday) have been lackluster despite sales tax holidays and do not
          bode well for holiday sales.

Consumer confidence

    --  "Consumers are more confident than they were a year ago, but this
        confidence is clearly fragile. We expect the impact of improved consumer
        confidence to be trumped by basic access to funds," commented Sievers.

Housing market

    --  "We see pent up demand for housing as a mixed bag. The end of the $8,000
        credit in December for new home buyers will likely create a rush of
        purchases and help increase spending in areas like home improvement but
        could pull funds away from other discretionary spending," commented
        Lavieri.
        o Sales of previously owned single-family homes were up 7.2% in July
          2009 compared with June and up 5% from July 2008.
        o The lowest (relative) home prices in decades might finally be enough
          to incent consumers to make a move; experts expect the end of the home
          tax credit to create a rush towards new home purchases at year end.

Cash for Clunkers (Appliances)

    --  "Government incentives being discussed to buy appliances will certainly
        impact holiday sales. However, lack of a consistent implementation
        approach as plans are being administered state by state will likely
        limit the program's impact," commented Hanna Hamburger, Director in the
        Consumer Product and Retail Practice at Archstone Consulting.
        o Appliances: $300M set aside for the program; rebates will be issued
          that can be used to cover everything from refrigerators to furnaces
          and air conditioners. Effective dates and programs will vary by state.

Foreign Investment

    --  "Decreased spending worldwide is an extension of the same trends from
        last year as recession has taken a toll globally," commented Lavieri.
        "Foreign consumers who drove significant Holiday sales in 2006 and 2007
        will not flock to the U.S. and shop this Holiday season in spite of a
        weak U.S. dollar."

Stock Market

    --  "The rising stock market should increase personal wealth, which will
        have a positive effect on holiday retail spending. Its impact will be
        muted, though, by consumer de-leveraging and an on-going new
        conservatism in wealth management," commented Lavieri.

Stimulus Impact and 2010

    --  "Two factors will lead to some optimism as 2009 comes to a close -
        increased overall economic growth is expected in 2010, along with the
        Government stimulus program taking hold next year could lead to a few
        more jobs and more personal wealth in 2010. However very little of the
        Government stimulus will make its way to consumers' pocketbooks for this
        year's holiday spending," commented Sievers.
        o The government had paid out about $80.9 billion in stimulus funds as
          of Aug. 14. Most of the spending so far has been in four areas
          (according to CBO these four are: Medicare health coverage for the
          poor; unemployment benefits; one-time $250 payments to retirees; and
          grants to states for education and other government expenses).

Notes on Methodology and Analysis

For 2009, Archstone Consulting continued to rely on its proprietary, predictive model using a comprehensive list of factors. These include monthly disposable income, unemployment rate, consumer price index, price index for oil, wages, housing market, and retail inventory levels. Additional research on consumer credit, savings rates, consumer confidence, impact of government stimulus programs, and foreign investment, was also factored into this year's report.

Significant analytical and research contributions to the assessment were made by Archstone Consulting Director, Hanna Hamburger and Associates, Sam Snyder and Julie Bonne.

The information provided above is provided by Archstone Consulting solely for informational purposes. In addition, the statements above speak as of the date of this release. Factors could arise after this date that could affect the outcomes and forecasts set forth above. Archstone Consulting shall have no liability to any party for any action taken or not taken, or results obtained, in reliance of this information

About Archstone Consulting

Archstone Consulting is a leading Strategy and Change, Operations and CFO Advisory management consulting firm, specializing in the consumer products, retail, life sciences and general manufacturing industries. Archstone Consulting helps companies restructure and reduce their costs, while improving their business processes and operations. Headquartered in Stamford, Connecticut, Archstone Consulting has offices in Amsterdam, Chicago, New York and San Francisco. For additional information, please visit us at www.archstoneconsulting.com.

    Source: Archstone Consulting

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