Holiday gains likely won't match '05

Income growth will fuel sales; predictions range from 4.8% to 7% boost

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You won't find uniformity in Christmas sales forecasts this year, except this: There's little chance gains in 2006 will be as hefty as in 2005.

The seemingly endless barrage of predictions ranges from a healthy 4.8% uptick from the International Council of Shopping Centers to a robust 7% boost from consulting firm Deloitte. In between, you'll find a 5% rise to $457 billion from the National Retail Federation and a 6.5% jump predicted by Merrill Lynch.

Although most agree 2006 growth rates won't surpass the increase of 6.1% in November and December 2005, as tracked by the Commerce Department, retail sales will log in above the $746 billion for November/December '05 and the $713 billion during the same period in '04. But if you're looking for a longer perspective on just where this holiday season fits, it's on track to beat the 10-year average gain of 4.6%, according to NRF figures.

Some analysts warn against focusing too heavily on the statistics. "This year there's a bigger dominant story at play," said Michael P. Niemira, chief economist at the International Council of Shopping Centers. "If there's one word, it is income. Personal income growth is booming, and that covers up a lot of potential problems." He said 2006 personal income growth is up 8% based on Commerce Department reports.

Yet the income gains aren't shared across all demographics, according to Frank Badillo, an economist at Retail Forward. "Upscale consumers are in a stronger position this year," he said. "We are going to get a divergence between upper-income households and lower-income households."

Muddling the holiday forecast are disparate results from September and October, when retailers such as JC Penney and Kohl's posted strong same-store sales gains, while dollar stores and Wal-Mart logged poor results. Wal-Mart has slashed prices on electronics and home appliances early in the season. "We will be relentless in establishing price leadership during the fourth quarter," said John Menzer, head of the Wal-Mart Stores division.

Gift cards can also be blamed for causing angst among industry watchers and retailers. Since retailers cannot book gift-card sales until they are redeemed, the booming market has created uncertainty for retailers. Dollars from generic gift cards-mall gift cards, Visa and MasterCard gift cards-can go anywhere. "It's lengthening the season and helping people who weren't typically players during the season," said Phil Rist, an analyst at Big Research, a Columbus, Ohio, retail-research firm.
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