Retailers encouraged by already-strong sales

updated 9:11 a.m. ET Oct. 6, 2006

NEW YORK - A warning to procrastinators: Better shop early if you want the must-have holiday gifts.

Already, toy sellers like Wal-Mart Stores Inc., Toys R Us Inc. and KB Toys Inc., are scrambling to get their hands on more hot toys, particularly T.M.X. Elmo from Mattel Inc.’s Fisher-Price, whose better-than-expected sales are making it increasingly likely to be the must-have toy for the season.

In yet another encouraging sign of consumers’ willingness to spend, Scott McCall, chief toy officer at Wal-Mart, noted that high-priced toys like $249 red Mustangs under Mattel’s Powerwheels brand are selling fast early in the season, something that he hasn’t seen in five years.

And Michael Gould, chairman and CEO of Federated Department Store Inc.’s Bloomingdale’s, reported strong sales of fall merchandise in September, which could only bode well for holiday apparel.

“There is no question that business is better. It has been a strong September,” Gould said. “Apparel business has been good, the shoe business has been outstanding. There is a better feel out there.”

Such encouraging signs are helping to lift the spirits of many retailers, who only this summer planned for modest gains in holiday inventory as they worried about how soaring gasoline prices and rising interest rates would curtail gift-buying. In recent weeks, falling gasoline prices, receding mortgage rates and a rebounding stock market have helped to perk up consumer demand and ease merchants’ worries about the holiday season.

Stores are expected to report a strong same-store sales gain of about 4 percent for September on Thursday, according to Michael P. Niemira, chief economist at The International Council of Shopping Centers. That’s higher than Niemira’s original 3 percent forecast. Same-store sales are sales at stores opened at least a year. One exception will be Wal-Mart, which estimated on Saturday that same-store sales were up a disappointing 1.8 percent in September from the year-ago period, when it benefited from a spending spree tied to preparing for and recovering from the hurricanes.

Still, merchants are being cautious as they adjust some holiday orders, so consumers won’t see the same level of generous deals as they did a year ago and procrastinators won’t find the goods they want.

“Yes, (stores) may be adjusting to possible gains,” said Dan Butler, vice president of retail operations at the National Retail Federation. “But they are not going overboard. Gas prices could always go back up.”

And other big challenges still remain. One big worry is the deteriorating housing market. In the last few years, a booming housing market and record-low interest rates spurred spending as consumers tapped into their rising home equity. Still, the recent pause in interest rate hikes by the Federal Reserve should offer some relief to shoppers.

Meanwhile, the New York-based Conference Board reported last week a rebound in consumer confidence in September, but the survey showed consumers’ lingering concerns about the job market. Employment showed modest gains in August, with wages barely up, according to the latest job report.

Consumers have remained resilient throughout the year, despite rising gasoline prices. Still, there have been some signs of consumer strain in recent store sales reports. Wal-Mart has blamed rising prices at the pump for slowing sales this year. J.C. Penney Co. Inc., which generally pleases Wall Street, reported disappointing sales in August, dragged down by slower demand for big purchases like furniture.

For the holiday season, The National Retail Federation forecasts a healthy 5 percent gain in total sales for the November-December period. That’s higher than the 4.6 percent average over the last decade, though less than the 6.1 percent from the year-ago period. Scott Krugman, a spokesman at NRF, said falling gasoline prices were reflected somewhat in the forecast, but he cautioned not to make too much of the trend since it could be only temporary.

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