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Retailers packing the decorations after an abysmal 2001 holiday have perhaps one reason to smile: The 2002 holiday season undoubtedly will look much brighter.

Barring any further terrorist events, and if consumer confidence continues its upbeat trend, Wall Street and retail analysts anticipate a retail turnaround by the second half of the year. Retailers at the end of 2002 will be up against very weak comparisons in a key index, same-store sales, which measures the sales performance of stores established for at least a year.

"There will be easy comparisons, particularly in the second half," which in 2001 reflects post-Sept. 11 sales, said Richard Baum, senior retail analyst at Credit Suisse First Boston.

That won't necessarily help a number of retailers facing serious challenges, however. Prudential Securities analyst Wayne Hook, for example, raised the question of a bankruptcy option last week for Kmart Corp. when he cut the stock's rating to "sell." Kmart said it has sufficient money and credit lines to continue its strategies.

Others aren't writing off Kmart just yet. "Kmart has at least until the fall of this year to turn itself around," said Kurt Barnard, president, Barnard's Retail Trend Report. Mr. Barnard, as well as a number of other retail analysts, declined on ethical grounds to discuss bankruptcy for Kmart or any other retailer.

He did, however, question Kmart's decision to cut advertising spending at the same time it broke its BlueLight Always everyday low pricing program. "They do not have any real marketing campaign," he said. Kmart Chairman-CEO Chuck Conaway has publicly acknowledged his marketing misstep.

J.C. Penney Co., another retailer in a rebuilding mode, was praised by Mr. Barnard for holding off on a major advertising push until its stores and products are ready for relaunch. "They are wait-ing until they have the right story to tell," he said. Penney's agency is Omnicom Group's DDB World-wide, Chicago.

Others wonder when, and how, the Gap will fundamentally turn around following a November in which same-store sales were down a whopping 25%. "They need to send a signal they are coming to grips with this and are taking steps to correct this problem," said one retail marketing expert. Gap Inc.'s advertising is done in house for all its divisions, with Modernista, Boston, helping out on Gap stores.


Retailers' sales overall this holiday season provided few surprises: Discounters such as Wal-Mart Stores and Target Corp. and hybrid Kohl's performed well, while specialty stores and luxury stores did not. Big sellers included electronics products and home products, while apparel sales, and those at department stores dependent on apparel, were sluggish.

Merrill Lynch & Co. analyst Daniel Berry has expressed concern that the terrorist attacks may have put a significant long-term damper on apparel sales, calling the tendency to spend less on apparel not just a product of difficult economic times, but a broader, deeper "secular trend."

Apparel sales on the Web should get a boost this year from a shift under way: Women outnumbered men as holiday cybershoppers for the first time last year. The Web, meanwhile, was one of the holidays' brighter spots.

Elsewhere luxury and high-end stores posted lackluster sales, and one standard bearer for the group, Nordstrom's, continues to stumble. Another analyst wondered whether Target Corp. was polishing its recently combined Marshall Field's chain for sale.

Also on some analysts' watch lists is Toys "R" Us which has just completed an extensive redesign to update stores with specialty departments and private-label goods and launched its Times Square flagship. As one Merrill Lynch analyst noted, if Toys "R" Us doesn't turn around by the fourth quarter, it would mean the strategy doesn't work.

"The economy is doing what it should be doing-pulling out the chaff," said Ellis Verdi, president of New York ad shop DeVito/Verdi, and a member of the National Retail Federation's Retail Advertising and Marketing Association.

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