Retailers Shouldn't Expect Much Holiday Cheer

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retailers face a bleak holiday seasonThe holiday shopping season is looking pretty bleak for retailers. Best Buy (BBY) recently announced that it plans to hire fewer holiday workers this year, and now new data from the consumer research group NPD suggests that Best Buy won't be the only retailer stuck in a holiday sales rut.

How Bad Are We Talking Here?

According to NPD's Holiday Retail Outlook, the total amount consumers spend on gifts won't change much from last year. The study found that 9% of consumers plan to spend more during this holiday than they did last year, while 64% plan to spend about the same, and 27% say they will spend less (compared with 30% that intended to cut their shopping budget last year).

It's not just how much consumers plan to spend that should worry retailers, but also where they plan to do their holiday shopping.

Shopping preferences are favoring online retailers: The share of consumers planning on doing their shopping online increased 3% to 38%, while the share of those planning on visiting discounters like Wal-Mart (WMT) and Target (TGT) decreased by 3% to 51%.

Santa's Not Shopping for Many Electronics

What will those who brave the big-box stores' parking lots pick up? Not high-margin television sets, it turns out. The number of shoppers planning on buying electronics decreased slightly, down to 15%.

That's bad news for electronics chain hhgregg (HGG), which already suffers from cascading same-store sales and relies on selling the newest and shiniest of television sets to drive profits. The company needs a blowout holiday season to reverse its losing streak, but it's most likely going to report another disappointing season.

Other specialty retailers, like Barnes & Noble (BKS) and GameStop (GME), should also brace for disappointing holiday sales. According to the NPD study, fewer consumers are planning on purchasing the items that keep these retailers afloat.

Gift Item
Consumers Intending to Purchase, 2011
Consumers Intending to Purchase, 2010
Books
20%
23%
Movies/DVDs
19%
24%
Music
13%
14%
Video Games/Game Systems
13%
15%
Source: The NPD Group, Annual Holiday Survey.

GameStop in particular is suffering a double-whammy: The store really needs a demand for hardware to drive sales. Unfortunately, Sony (SNE) delayed the release of the PlayStation Vita -- which was the only new console this season -- until next year. Unless Nintendo's 3DS suddenly becomes popular, or the potential to control your TV using voice commands drastically increases demand for Microsoft's Xbox 360 and Kinect controller, I don't see GameStop's sales making the high-score list.

Where's the Holiday Cheer?

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Despite the glum outlook on the retail landscape, there will be a few bright spots. Citigroup's Consumer Hour Glass Theory -- which states that the consumer market is further splitting into an upper and lower class while the middle erodes -- appears to still be in effect. As a result, it's likely that high-end stores like Saks (SKS), Tiffany (TIF), and Coach (COH) will repeat their stellar sales performances from last year.

At the other end of the hourglass, I'd look to Costco (COST) and the other warehouse clubs -- which have been posting respectable gains in same-store sales recently, and deep discount retailers like Dollar General (DG). The NPD study also found that the number of consumers planning on shopping in the warehouses increased 1% this year.

Outside these small patches of the retail space, I wouldn't expect anything more than very modest sales growth.

Motley Fool contributor Patrick Martin owns no shares of any of the companies mentioned here. You can follow him on Twitter, where he goes by @TMFpcmart03. The Motley Fool owns shares of Wal-Mart Stores, Costco Wholesale, Microsoft, Best Buy, Coach, Citigroup, and GameStop. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores, Amazon.com, Nintendo, hhgregg, Coach, Costco Wholesale, and Microsoft. Motley Fool newsletter services have recommended writing covered calls in GameStop, creating a bull call spread position in Microsoft, and creating a diagonal call position in Wal-Mart Stores.

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