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Shopper Survey: Retail Upturn Expected in February

COLUMBUS, Ohio - High-end retail stores did the best this Christmas, and consumer spending is expected to remain weak through January, according to a shopper survey conducted by the Retail Forward consulting firm here.

While Retail Forward expects sizeable tax refunds to propel strong retail sales growth for the first quarter of 2004, results from the December 2003 Retail Forward Monthly Shopper Update indicate that this upturn will be most notable starting in February. For January, consumer spending plans point to continued sluggish sales growth, with all but the most upscale consumers maintaining a cautious approach to spending.

Compared with January 2003, survey results indicate that more households overall plan to spend less this month at retail stores (29 percent) than plan to spend more (17 percent). The lowest-income households (under $25,000) are particularly cautious, with a full third planning to spend less. Only the highest-income households ($100,000 and over) are planning to spend more (24 percent) than less (19 percent) in January.

One reason that middle- and lower-income households continue to have restrained spending plans is that many have yet to see an improvement in their household incomes and job security. This isn't the case with the highest-income group, which is seeing strong improvement in household financial situations. Survey results indicate:

-Only 24 percent of all households report that their job security is better off than it was last year, while 34 percent of higher-income households say this.

-Nearly 40 percent of all households report that their household income levels have improved compared with a year ago, while a full 60 percent of higher-income households report having experienced improvement.

Retailers took a hit to their 2003 holiday revenue because of the increasing popularity of gift cards, with revenue remaining unrecognized until the cards are redeemed. Retail Forward survey results indicate that 53 percent of all households received at least one retailer gift card or gift certificate this holiday season, with an average of 2.7 cards received per household. Among households receiving gift cards, the average total value of all cards was $150, with an average of $227 among the highest-income households.

The good news for retailers is that households receiving gift cards plan to redeem an average of 76 percent of their total value by the end of January, and nearly two-thirds (62 percent) of households receiving gift cards plan to redeem 100 percent of the value of all gift cards by the end of the month.

Another bright spot of the holiday season was online retailing. While 60 percent of all respondents bought gifts online this year, even more (84 percent) shopped for gifts online, regardless of whether they bought anything.

One reason online shopping is becoming a holiday tradition for the majority of consumers is that the experience is much more rewarding than it was in the early days of e-retailing. Among online gift shoppers, 79 percent were satisfied with every aspect of their online shopping experience, while 20 percent were satisfied with some but not all aspects.

High-value online shopping features are also increasing the medium's appeal. Free shipping was the most used feature for online gift shopping, with 56 percent of online shoppers taking advantage of this benefit. Gift selection features, such as online wish lists and online gift recommendations, were used by 17 percent and 12 percent of online gift shoppers, respectively.

In a related development, Bernard Sands retail analyst Richard Hastings said he expects demand to remain strong at high-end stores, including Saks Fifth Avenue, Neiman Marcus, PacSun, Chico's, and Ann Taylor.

"After years of spending on ceiling fans, leaf blowers, new gutters, and other sexy home-improvement expenditures, there is now a strong wave of demand for personal fashion products. This is strong wave that will continue all the way through the current year," he noted.

However, he doesn't expect sales in the mass market channel to be as strong. "We believe continued household liquidity issues in the lower percentiles of the consumer universe are negatively impacting sales at mass market retailers, a challenge likely to continue for many more months. Year-over-year price deflation also contributed to the relatively weak sales numbers in this category, again dilutive to total retail sales in December," he said.
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