Consumer spending forecast unclear

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In the immediate aftermath of the terrorist attacks, numerous chains turned to charity-based marketing, contributing corporate dollars and collecting customer's blood and monetary donations for relief efforts.

But the effect of the attacks on consumer spending for the rest of this year is still uncertain. Even before terrorists attacked, the nation's retailers were in need of a Christmas marketing miracle to stave off what could be one of the toughest holiday seasons in memory.

Initial holiday forecasts developed before the attack found "consumer sentiment had plummeted to a level not seen in years," said Kurt Barnard, president, Barnard's Retail Trend Report. "People will buy what they need," and will not spend frivolously, he said. A run on American flags may foreshadow a boost for some brands such as Ralph Lauren or private-label patriotic apparel and other products.

Before the attack, PricewaterhouseCoopers LLP's Retail Intelligence System forecast the weakest holiday season since the 1991 recession, with fourth-quarter sales, excluding automobiles and gasoline, growing 2.5%, down significantly from 4.5% in 2000. The specter of falling prices and deflation also loomed as numerous retailers faced a "super competitive" environment and, in some channels, large inventories, according to the report.

FEWER `UNPLANNED MARKDOWNS'

Michael Baker, research director, International Council of Shopping Centers, however, believes inventories are well controlled, producing fewer "unplanned markdowns" and price-slashing sales.

Retailers' headaches could result in an opportunity for major global advertising agencies, said Burt P. Flickinger III, managing director, Reach Marketing, Westport, Conn. "Retailers are starting to see agencies as part of their consumer communications strategic solution," and may begin to rely less on in-house agencies, he said.

Although the dot-com bust triggered the economic gloom, one consolation going forward is e-commerce sales, which PricewaterhouseCoopers expects will grow 38% from $8.6 billion, or 1.4% of fourth-quarter sales last year to $11.9 billion, or 1.8% of this year's sales. Mary Brett Whitfield, director of e-retail intelligence, noted, however, "it pales (to previous years) when anything less than 100% was considered punk performance." Amazon.com, already a partner with Toys `R' Us, last week signed with Target.com to sell jewelry and apparel on its site. Others noted consumers might decide to shop online to avoid crowds.

Other uncertainties center on one sector of the populace significantly influencing retail sales. Irma Zandl, president of youth-marketing consultancy the Zandl Group, said much depends on whether suburban and small-town teens relate to events in New York and Washington. "Do youth in Milwaukee feel this will never happen to them?" she asked.

Mr. Barnard, nevertheless, anticipates a modest recovery at the end of the year. "After all," he said, "life does go on."

Contributing: Stephanie Thompson

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