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Welcome to the ShopperScape™ Newsletter October 2006 PREDICTIONS Look for three-quarter of shoppers to focus some of their October spending on Halloween on candy and costumes. Prepare to leverage the lift in spending this month by all income segments. Expect a less buoyant but solid December holiday spending season with most shoppers planning to spend about the same amount as they did last year. Plan for the coming holiday season's sales to extend into January as gift cards retain their popularity. Anticipate continued growth in Internet holiday shopping as consumers seek convenience via the Web. Look for increased spending in apparel this month and for parents on the hunt for hot holiday toys. HOT OFF THE PRESS Sizing Up the Tricks and Treats of Halloween Spending Overall, the majority of shoppers plan to spend about the same on Halloween this year as they did last year. Shoppers who plan to spend less this year on Halloween outnumber those who plan to spend more. Down Market shoppers are the most likely to not spend anything at all. Candy and costumes will vie for the largest overall shares of wallet. More than half (51%) of all shoppers plan to spend about the same on Halloween this year compared to last year (Figure 1). Figure 1 Compared to last year, do you plan to spend more, the same, or less this year on Halloween?   All Shoppers Down Market Middle Market Up Market Much more 1% 2% 1% 2% Somewhat more 7% 8% 7% 7% About the same 51% 37% 52% 60% Somewhat less 10% 8% 9% 11% Much less 8% 11% 8% 6% Do not spend on Halloween 24% 34% 24% 14% Source: Retail Forward ShopperScape™. More than twice as many Down Market shoppers (34%) do not plan to spend on Halloween compared to Up Market shoppers (14%). Candy will be the most popular purchase this holiday season with 89% of all shoppers planning to purchase sweet treats. While the average amount spent on candy ($17.15) by purchasers is less than half of what costume purchasers plan to spend ($37.63) on spooky attire, candy will bring in the most money among all shoppers. Other popular items include decorations with spending on outdoor decorations edging out spending on indoor decorations (Figure 2). Figure 2 Halloween Category Spending     Percent Planning to Purchase Category Average Amount Spent by Shoppers Planning to Purchase Category Overall Average Amount Spent by All Shoppers Candy   89% $17.15 $11.57 Costumes   36% $37.63 $10.37 Outdoor Decorations   31% $22.56 $5.36 Indoor Decorations   27% $19.63 $4.07 Greeting Cards   21% $8.14 $1.28 Other   10% $20.30 $1.47 Source: Retail Forward ShopperScape™. OCTOBER CONSUMER OUTLOOK FEELING FLUSH, SHOPPERS TO PICK UP PACE Views of Jobs, Incomes and Wealth Improve The Retail Forward Future Spending Index bounced back to 99.1 from last month's 92.7 (Figure 3). The Future Spending Indexes for all three of the key income segments registered increases this month. The Future Spending Index for Up Market households (incomes of $75,000 or greater) rose to 94.5 in October from 89.3 in September. Assessments of job security increased to their highest level since the first quarter. Reports of investment worth also jumped. And refinancing activity in this income segment increased as mortgage rates fell to multi-month lows. Middle Market households (incomes of $22,500 to $74,999) also are more upbeat about the outlook, and for the same reasons as Up Market households. Job prospects, investments and refinancings all improved in this cohort. Concerns about mortgage debt loads also abated, as the pick up in refinancings made payments more affordable for many. The Middle Market index improved to 100.7 this month from 96.0 in the prior month. Results for Down Market households (incomes of less than $22,500) parallel the other two income groups. Better appraisals of jobs, incomes and investments, along with a rise in refinancings, have prompted the more optimistic outlook in this segment. The Down Market index increased to 106.6 compared with 92.0 in September. Figure 3 Retail Forward Future Spending Index™ (December 2003 = 100) Source: Retail Forward ShopperScape™. The Retail Forward Future Spending Index combines households' current assessments of key drivers of spending across income segments, including the job situation, incomes, investments, debt levels, home buying, and seasonal factors to produce a forward-looking indicator of spending for the coming month. SHOPPER INSIGHTS Shoppers Intend to Spend the Same on Holiday Gifts Looking forward to the December holiday season, ShopperScape™ results indicate that the holiday sales pace should be less buoyant than last year. The majority of shoppers plan to spend about the same on holiday gifts and gift cards this year, though more plan to spend less on holiday gifts than plan to increase their spending. Overall, 64% of all shoppers plan to spend the same on holiday gifts this year compared to last year (Figure 4). Up Market shoppers are the most likely to spend the same amount. Figure 4 Compared to last year, do you plan to spend more, the same, or less this year on holiday gifts including gift cards?     All Shoppers Down Market Middle Market Up Market Much more   2% 2% 2% 2% Somewhat more   10% 10% 11% 10% About the same   64% 52% 63% 70% Somewhat less   13% 15% 14% 12% Much less   8% 14% 8% 4% Do not spend on holiday gifts   4% 8% 3% 2% Source: Retail Forward ShopperScape™. Twelve percent of all shoppers plan to spend more this year on holiday gifts compared to last year, nearly half of the percentage planning to spend more. Down Market shoppers will be watching their wallets more than other income segments this year. Due to shopping ease and convenience, gift cards are a popular choice for holiday gift givers. Only 12% of all shoppers do not plan to purchase gift cards during the holiday season (Figure 5). Overall, 62% of shoppers plan to spend the same amount of their holiday budget this year on cards. Down Market shoppers are the least likely to pony up for a gift card. Figure 5 Compared to last year, do you plan to spend more, the same, or less of your holiday budget this year on gift cards?   All Shoppers Down Market Middle Market Up Market Much more 1% 2% 1% 1% Somewhat more 7% 6% 8% 9% About the same 62% 48% 61% 69% Somewhat less 11% 11% 11% 9% Much less 7% 14% 7% 4% Do not buy gift cards 12% 19% 12% 9% Source: Retail Forward ShopperScape™. Spending the Holidays in Cyberspace Internet shopping continues to grow in importance as a retail channel, and the holidays clearly will benefit according to this month's ShopperScape™ results. In fact, two-thirds of all shoppers plan to do about the same or more of their holiday shopping online this year. The majority (52%) of all shoppers plan to do about the same amount of shopping online this year for holiday gifts (Figure 6). But more shoppers (14%) plan to up their Internet purchases than plan to cut back (11%). Eight out of ten (81%) Up Market shoppers plan to do about the same or more of their holiday shopping online this year compared to last year. This percentage is far greater than that for Middle Market shoppers (64%) and Down Market shoppers (49%). Still, there are some holdouts. Almost one-quarter (24%) of all shoppers do not plan to shop for the holidays online. This is highest among Down Market shoppers (35%) and lowest among Up Market shoppers (10%). Figure 6 Compared to last year, do you plan to do more, the same, or less of your holiday shopping online this year?   All Shoppers Down Market Middle Market Up Market Much more 2% 2% 2% 3% Somewhat more 12% 9% 11% 17% About the same 52% 38% 51% 61% Somewhat less 6% 6% 7% 6% Much less 5% 10% 4% 3% Do not do holiday shopping online 24% 35% 25% 10% Source: Retail Forward ShopperScape™. GOING UP AND GOING DOWN Going Up: Apparel and Toys Apparel will see the biggest increase in purchase plans this month. Specifically, women's jeans, women's casual tops, men's jeans, boy's clothing, women's dress shoes, men's athleticwear and men's casual tops will see increases compared to last month. Toy's/dolls/games are also up from last month as parents get the jump on popular holiday toys (Figure 7). Figure 7 Purchase Plans for October 2006   Plan to Purchase in Next 4 Weeks September, 2006 Plan to Purchase in Next 4 Weeks October, 2006 Percentage Point Difference in Plans to Purchase September- October 2006 Plan to Purchase Next 4 Weeks in October 2005 YTY October, 2005-October, 2006 (PPD)             Women's jeans 17.7% 19.7% +2.0 19.2% +0.5 Toys/Dolls/Games (not video games) 11.8% 13.7% +1.9 14.4% -0.7 Women's casual tops (knit shirts, sweaters, casual blouses, etc.) 22.6% 24.4% +1.8 24.3% +0.1 Men's jeans 10.1% 11.9% +1.8 11.0% +0.9 Boy's clothing 10.6% 12.0% +1.4 12.1% -0.1 Women's dress shoes 11.7% 13.1% +1.4 12.6% +0.5 Men's athleticwear (pants, tops) 6.5% 7.8% +1.3 7.7% +0.1 Men's casual tops (knit shirts, sweaters, casual woven shirts, etc.) 10.4% 11.4% +1.0 11.3% +0.1 Source: Retail Forward ShopperScape™. Going Down: Back-to-school and Health and Beauty Care Shoppers' needs for back-to-school supplies continue to dwindle as the school year gets in full swing. Interest in health and beauty care categories such as prescriptions drugs, hair care products, skin care products and non-prescription drugs also declined compared to last month. Small kitchen appliances and cell phones also see a dip in popularity (Figure 8). Figure 8 Purchase Plans for October 2006   Plan to Purchase in Next 4 Weeks September, 2006 Plan to Purchase in Next 4 Weeks October, 2006 Percentage Point Difference in Plans to Purchase September- October 2006 Plan to Purchase Next 4 Weeks in October 2005 YTY October, 2005-October, 2006 (PPD)             Children's school supplies (paper, pens, folders, crayons, etc.) 11.8% 7.1% -4.7 7.8% -0.7 Home office supplies (paper, pens, folders, etc.) 18.4% 15.6% -2.8 18.9% -3.3 Prescription drugs 36.5% 34.1% -2.4 36.0% -1.9 Small kitchen appliance (toaster, portable microwave, coffeemaker, etc.) 9.8% 7.8% -2.0 9.2% -1.4 Hair care products (shampoo, gels, hair dye, etc.) 30.9% 29.0% -1.9 33.3% -4.3 Skin care products (lotions, creams, cleansers, etc.) 24.4% 22.8% -1.6 24.9% -2.1 Non-prescription drugs 23.3% 21.7% -1.6 24.3% -2.6 Cellular/Mobile phone 8.6% 7.1% -1.5 7.8% -0.7 Source: Retail Forward ShopperScape™. POINT OF VIEW The Home Depot 2010, September 2006 "As 2010 approaches, The Home Depot is on the cusp of a three-decade growth path that has fundamentally reshaped the home improvement industry. Indeed, the company is poised to outpace even Wal-Mart's first 30 years. But reaching maturity means the retailer is under increasing pressure to mine growth with new merchandise offers, services, formats and markets. The challenges are being magnified as they occur in the context of significant corporate restructuring and increasing competition from Lowe's. Still, The Home Depot can be expected to aggressively pursue innovations as it seeks to build a sturdy platform for future growth." Stephen Spiwak, Retail Economist, Senior Consultant and Manager of the Homegoods and The Home Depot programs, Retail Forward, Inc. For more information on the The Home Depot 2010, September 2006 or the Retail Forward Intelligence System™ call Kathy Clarke at 614-355-4009 or email her at kclarke@retailforward.com. New! Retail Forward Launches New ShopperScape™ Wal-Mart Panel! Wal-Mart has rocked the retail world and sent aftershocks throughout the supplier community. With two-thirds of shoppers visiting a Wal-Mart store at least once a month, its penetration into U.S. household is without precedent. Retail Forward's ShopperScape™ Wal-Mart Panel helps organizations discover the opportunities that exist within the walls of Wal-Mart. In its latest white paper, "Wal-Mart Shopper Insights: The High Demand for Low Price," Retail Forward provides an assessment of the results from its February 2006 ShopperScape™ Wal-Mart Panel and introduces a scorecard that retailers can apply to their businesses to track their progress against the competition. To receive a copy of this white paper and to learn more about Retail ShopperScape™ Wal-Mart Panel, contact Katherine Clarke at kclarke@retailforward.com. What's Retail Forward ShopperScape™? Retail Forward ShopperScape™ focuses on today's consumers and their shopping behaviors. Retail Forward ShopperScape™ has been fielded since November 2003 to a sample of 4,000 consumers each month. The survey gathers timely, up-to-date information about where consumers shop and what they buy. Retail Forward ShopperScape™ is administered through TNS/NFO's online household panel, weighted based to be representative of U.S. households. For more information, call Kathy Clarke at 614-355-4009 or visit http://www.retailforward.com and select ShopperScape™ under Product & Services in the navigation bar located at the top of the home page to view sample reports and learn more about how to access ShopperScape™ information. 700 Ackerman Road Suite 600 Columbus, Ohio 43202 Voice: 614 355 4000 Fax: 614 355 4059 http://www.retailforward.com To subscribe to the Monthly ShopperScape Newsletter™ or other Retail Forward newsletters, click here. If you would like to stop receiving the ShopperScape™ Monthly newsletter, please edit your content preferences here.