If you cannot read this ShopperScape(tm) Newsletter for December 2004, go to http://www.retailforward.com/shopperscape/shopperscape1204.htm

Welcome to the ShopperScape™ Newsletter December 2004

• Anticipate that shoppers will continue to expect bargains to drive them into the stores this holiday season.
  
• Expect for Down Market consumers to feel some pressure on their spending from gas prices, which while down from summer remain higher than last year's prices.
  
• Prepare for procrastinating shoppers and a late turn out at stores this season.
  
• Look forward to cheerier holiday spirits this month uplifted by positive job prospects.
  
• Watch for Sears to win customers off mall.
  
  

Cautious Shoppers Cast a Shadow on Spending Plans

Up Market and Middle Market shoppers have become more cautious about their holiday spending plans as the season rolls on. The percentage of consumers in these segments who plan to reduce their holiday spending from last year continues to increase. Interestingly, the Down Market's slide in holiday spending plans appears to have stabilized and even become a little less pessimistic from last month. These findings fortify the notion that consumers need some motivation to open their wallets wider this season.

• Thirty-five percent of all shoppers in November said they plan to spend less on gifts compared with last holiday, up four percentage points from October. The proportion that plans to spend more slipped by a couple percentage points (Figure 1).
• Down Market shoppers stabilized their pessimistic slide this month.
• In sharp contrast, Up and Middle Market shoppers became less optimistic about their holiday spending plans between October and November.
  

Election and Gas (or Election Gas) Creating a Little Pressure

The pressure on shoppers' moods appears to be the result of the uncertainty generated by several recent events, including completion of the November elections, the outcome of the elections, the war in Iraq and the recent easing of gas prices.

• While the vast majority of shoppers (80% or more) said that these events have had no effect on their holiday gift shopping plans, more shoppers were likely to say that such factors will cause them to spend less in the coming month than those who say such factors will cause them to spend more (Figure 2).
• Down Market shopping plans are most likely to be negatively affected by such events as they are most vulnerable to the pinch of gas prices on their pockets (Figure 2). Although gas prices have eased since summer, they haven't eased enough for the Down Market to feel easier.
  

Will Procrastinators Run Out of Time before They Run Out of Money?

The majority of the current survey was taken right before "Black Friday" when shoppers were more preoccupied with cooking turkey and pumpkin pie than lining up at five in the morning to get the best deal at Best Buy.

Consequently, a large percentage of shoppers had not yet started their holiday shopping and a large percentage of holiday spending dollars were left to be spent. With Christmas coming on Saturday this year, let's hope that procrastinators don't run out of time before they run out of money.

• Among all shoppers, 40% said they had not yet started shopping for the holidays (Figure 3). Almost half of Down Market shoppers hadn't started their shopping prior to Thanksgiving weekend.
• The non-procrastinators still had well over half of their budgets to spend (Figure 4).
• Up Market households have more of their budgets left than Down or Middle Market households. But, of course, they have much bigger budgets to spend—$1,133 on average compared to $299 for Down Market shoppers and $569 for Middle Market shoppers (Figure 5).
  

Job Prospects Buoy Markets

The indices for both the Middle and Down Markets posted solid gains this month and now stand above last December's levels, suggesting a better holiday season for these segments than a year ago. The Up Market index slipped for the second straight month, indicating a slower pace of holiday spending for these households compared with last year's spending surge.

• The index for Middle Market households (incomes between $22,500 and $75,000) increased to 104.8 in December from 99.9 the month before. That is the highest level since April, when consumers were spending at a healthy pace. The index was driven higher by stronger assessments of nearly all the key metrics, including jobs, incomes, debt levels, investments and home buying.
• Rising optimism about the availability of jobs coupled with easier debt burdens caused the index for Down Market households (incomes less than $22,500) to increase modestly to 103.7 in December following a four month slide. The improvement in views of jobs and debts offset a falloff in home buying in this segment.
• Up Market households (incomes greater than $75,000) are showing some fatigue in December. The index for this segment (89.9) declined for the second consecutive month after staying above 100 for most of the past year. Higher debt burdens and weaker home buying have weighed on this segment in recent months, more than offsetting an uptick in job security and investment worth.
  

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.

Sears Likely to Win More Customers with an Off-Mall Move

Not only are today's shoppers budget constrained, but they are also time constrained and more likely to shop in more convenient strip centers than in enclosed malls. In response to the merger of Sears and Kmart, Retail Forward tested the oft-discussed off-mall proposition for Sears with shoppers.

• Our latest ShopperScape™ poll shows a healthy chunk of shoppers—about one-third—indicating that they would be more likely to shop at a Sears store in a strip center than one in an enclosed mall.
• Less than ten percent indicate they would be less likely to shop at Sears in a strip center than in an enclosed mall.
  

Sears' customers won't need to change their current shopping patronage patterns at strip centers to shop at a Sears located in a strip center instead of an enclosed mall.

• Almost six out of ten monthly Sears shoppers visit a large strip center anchored by either at least one discount store, a Kohl's or a category superstore at least once a month—or about as often as monthly Kmart shoppers patronize strip centers.
  

Purchasing Plans

Holiday treats on the menu. Category purchase plans for the month of December indicate that this holiday is guaranteed to make some noise with CDs, toys and games and DVDs in more shoppers' plans this month. It looks like Dad is going to get his wardrobe updated a bit and maybe get a little sporting equipment to complete his look. Fortunate moms can look forward to perfume and fine jewelry but unfortunate ones will again find themselves feigning delight over small appliance gifts.

DIY projects on the back burner. With holidays approaching and winter and its typically drab weather creeping into most parts of the country, consumers show a reduced appetite for buying categories associated with fixing up the home. Home office also shows some weakness, perhaps indicative of consumers anticipating more play and less work this coming month. Finally, women's casual and athletic shoes and casual, non-denim bottoms show signs of sagging.

Going Up

Going Down

Apparel Suppliers Transform Themselves

"In the past decade, apparel suppliers have been challenged by trends that have combined to create an environment of limited growth, upheaval in traditional apparel shopping channels and intense competition. Changes in how consumers buy and wear apparel, a less robust business environment and the upcoming WTO apparel quota phaseout further reduce potential for real growth—and will make for more stormy seasons ahead. To succeed in this environment, apparel suppliers are transforming themselves from makers into marketers, from brand managers into brand portfolio managers, from domestic into global distributors and from building strength in existing channels to investing in new growth channels."

Mandy Putnam, Vice President, Manager of ShopperScape™

For more information on Industry Outlook: Branded Apparel Suppliers or the Retail Forward Intelligence System™ call Kathy Clarke at 614-355-4009 or email her at kclarke@retailfoward.com.

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