Some analysts say the recession is showing signs of easing, but several year-end predictions indicate pet retailers should keep their expectations low when it comes to holiday sales.

Retail sales during the fourth quarter holiday period will be better than last year—but will still rank as the second-worst holiday in 42 years, according to management consulting and market research firm Retail Forward (Columbus, Ohio). The company predicts zero growth for the holiday fourth quarter, compared to a 4.5 percent decline in 2008 in key holiday retail segments (all retailing except the auto, food and drug channels).

“This is positive news as we move into the critical holiday season, but the economic environment will remain difficult,” said Frank Badillo, senior economist for Retail Forward. “Sales declines will persist for specific retail channels—particularly apparel and home goods—but will end for aggregate measures of retail sales.”

The National Retail Federation (Washington) projects a 1 percent decline in holiday retail sales for November and December sales, with sales totaling about $437.6 billion. That’s significantly below the 10-year average of 3.39 percent holiday season growth, but not as dramatic as last year’s 3.4 percent drop in holiday retail sales—or as severe as the 3 percent decline in annual retail industry sales expected for all of 2009.

“As the global economy continues to recover from the worst economic crisis most retailers have ever seen, Americans will focus primarily on practical gifts and shop on a budget this holiday season,” said NRF chief economist Rosalind Wells. 

Despite somber predictions, consumer confidence is trending up. Diminishing concerns about personal finances and job security pushed consumer confidence to a 12-month high in October, according to the RBC CASH Index. Overall, consumer confidence advanced 11.8 points, bringing the RBC CASH Index to 51.8 in October, versus 40 in September. The index has seen a 50-point improvement over the all-time low of 1.6 points in February 2008.

“Although the trends are moving in the right direction, consumer confidence remains fragile, and unexpected bad news about the economy or markets could once again send sentiment spiraling downward,” said Tim Porcelli, an economist for RBC Capital Markets (New York).

News of another challenging holiday season isn’t a surprise to most retailers, according to Tracy Mullin, NRF president and chief operating officer. “To compensate, retailers’ focus on the holiday season has been razor-sharp with companies cutting back as much as possible on operating costs in order to pass along aggressive savings and promotions to customers,” Mullin said.

Consumers are changing their ways, too, according to data analysis released by BIGresearch (Columbus, Ohio). The days of consumers living beyond their means are over, according to the consumer intelligence firm, which analyzed data from 2006 to 2009. Two in five consumers (39.9 percent) plan to spend less for holiday gifts than last year, while only 3.8 percent plan to spend more, according to its monthly Consumer Intentions and Actions Survey.

When asked how the current economic crisis will impact their lifestyle over the next five years, 52.1 percent of those surveyed said they will consider each purchase more carefully, 48.8 percent will be more price-conscious when buying clothes and food and 46.7 percent will stick to a budget.

“What we are seeing is a changed consumer,” said Gary Drenik, president of BIGresearch. “The faltering economy, employment worries and questions about who’s going to pay for health care are really weighing on the consumer’ psyche. And if they do as they say, marketers will be dealing with a changed consumer that is less inclined to spend for the next several years.”

Some retailers could see some extra cash, though, if they’re connected to a Visa/MasterCard lawsuit that could be settled early. According to the NRF, the case involves damages on an installment plan that was scheduled to run through the end of 2012, but the credit card companies have opted to finish off the payments in one lump sum rather than pay over the next three as scheduled. A court decision was pending as of press time, but details on the lawsuit are available at www.nrf.com. [December 2009 PET AGE]