Retail holiday shopping outlook looks good despite economic setbacks

October 11, 2007

GAINESVILLE, Fla. — The approaching holidays may be merrier than expected for retailers. Despite a troubled housing market and higher gas prices, Florida consumers say they intend to spend more this season than they did last year, a new University of Florida survey shows.

“Many retailers fear that this holiday season’s sales will be the worst in five years” said Barton Weitz, executive director of UF’s Miller Center for Retailing Education and Research. “But while our survey shows that people with lower incomes plan to spend less, those with higher incomes expect to spend more, which makes the overall effect positive.”

Floridians estimate they will spend an average of $1,325 during the 2007 holiday season, based on a telephone survey of 525 state residents during September. About 73 percent said they plan to spend the same or more this year. When asked the same question last year in a similar survey, only 62 percent indicated they would be spending the same or more than the previous year.

“One reason they gave for spending more is they are buying these high-tech games and toys that cost more,” Weitz said. “It’s not that they’re buying more things, it’s that the things they want to buy are more expensive.”

Consumers also said they have a greater number of family members to buy for this year and they simply have more money to spend, he said.

Families expecting to spend less this holiday season reported they either had less income from losing a job or working fewer hours or they had more expenses from higher utility bills or taxes, Weitz said.

Higher income consumers — those with annual household incomes of more than $60,000 – indicate they are likely to spend slightly more than $1,900, while those from households that make less than $60,000 are inclined to spend $890, he said.

Weitz said the income differences were not apparent in last year’s survey. “We do know there has been this general widening of the income gap between the haves and the have-nots that has been going on for quite awhile,” he said.

Of those from higher income households, 81 percent plan to spend the same or more this holiday season compared to last season, but only 67 percent of residents from lower income households intend to spend the same or more, he said.

Those in the lowest earning group — with household incomes of less than $30,000 — plan to spend the least. Forty-two percent reported they expect to spend less this season than last year, the survey found.

“These are the people who are most affected by the rise in gas prices and probably the increases in insurance costs and property taxes as well,” he said. “They could also be the same people suffering the effects of some of these subprime loans.”

Because of these income disparities, discount stores such as Family Dollar, Dollar General and Wal-Mart are likely to fare worse this holiday season than more upscale stores such as Macy’s, Nordstrom and Neiman Marcus, he said.

Retailers that appeal to these customers with lower incomes would probably be wise to have less merchandise and less inventory in stock than they might normally plan on,” he said. “At the end of the season, they don’t want to be stuck with excess inventory that they have to sell off at a loss.”

Generally, that is the pattern all retailers seem to be following right now because of the belief that this year’s holiday season will not be particularly robust, Weitz said. The holidays are critical for retailers, who rely on them for as much as 50 percent of annual sales, he said.

In other trends, 70 percent of consumers surveyed indicate they will be spending the same or more on gift cards than last year, 64 percent the same or more on apparel, 60 percent the same or more on things for the home, and 59 percent the same or more on toys and games.

The survey was conducted by the retailing center and UF’s Bureau of Economic and Business Research. The margin of error is 3 percent.