The week ahead will find US retailers at the eye of the Christmas trading storm, with seven out of the ten top grossing days of the holiday season all occurring in the eight-day period from 19-26 December. Richard Woodard looks at what lies in store.

Only Christmas Day itself provides any respite from the frenetic activity facing retailers over the next week.

Or rather, retailers are hoping that the activity will be frenetic, as they attempt to entice cash-strapped consumers into their stores after months of dismal news on the state of the economy, rising unemployment and inexorable increases in the cost of living.

Even the most bullish of predictions, that provided by the National Retail Federation (NRF), is forecasting a 2.2% increase in holiday sales to US$470.4bn.

That would represent the slowest growth since 2002's 1.3%, when revenues were hit by three factors: a recession, a shorter than usual holiday trading period and the distractions of a Presidential election. Sound familiar?

Other observers are even more pessimistic than the NRF. ShopperTrak expects a record low 0.1% increase in sales and a frankly depressing 9.9% drop in foot traffic, while The NPD Group found that more than a quarter of consumers were planning to spend less this Christmas - prompting a prediction of flat to declining sales.

"With consumers already saying they plan to spend less, stores with lean inventories, those inventories on sale as soon as they hit the floor, and tightening credit both for businesses and consumers, where can growth come from?" asks Marshal Cohen, NPD's chief industry analyst.

Closer inspection
Cohen's succinct appraisal of the current gloom bears closer inspection. To a certain extent, the sales slowdown becomes a self-fulfilling prophecy (rather like the loss of confidence in the financial markets): suppliers and retailers expect sales falls, so they produce, supply and stock fewer items as a result.

So even if by some miracle consumer confidence returned overnight, shops simply don't have the stock in their warehouses.

Tightening credit also has an effect here: businesses are finding it really tough to secure the credit needed to invest in stock - diminishing inventories still further - while consumers are less likely in the current environment to splurge on the credit card and worry about it in the New Year.

Then we have to consider how - or, more accurately, at what price - items are being sold when consumers do buy something. Here the trading patterns of the Black Friday weekend offer some clues.

Initially, the returns looked promising. Friday's sales of $10.6bn were 3% up on last year, according to ShopperTrak - but that early peak was not repeated as sales declines set in on Saturday and Sunday.

More revealing were the traffic figures, with retail foot traffic over the three days down 19.3% on 2007.

This gave a painful lesson to retailers for the remainder of the holiday period, as ShopperTrak's co-founder Bill Martin reports: "This large traffic decline is one retailers should closely monitor throughout the holidays, possibly forcing retailers to continue advertising deep discounts and holiday promotions throughout the whole season."
In other words, consumers are focused on the best offers, spending more money at fewer retail locations.

It's tougher to get them through the doors in the first place, and even if you do so, your margins will be decimated by the need to discount and promote to grab their attention in the first place.

Apparel's mixed outlook
What does all of this mean for apparel? Well, first of all, the good news. More than 50% of Black Friday shoppers, according to the NRF, bought clothing and accessories.

The colder weather this winter has encouraged the purchase of outerwear and associated accessories, and NPD surveys suggest that Christmas shoppers would still rather give apparel than anything else (49% of those surveyed, well ahead of toys at 37%).

But those figures gloss over the truth. Some NPD stats make grimmer reading: while 57% of consumers say they will cut back on dining out (almost always the first casualty of a recession), 52% will find less money to spend on clothing.

What is more, adds NPD's Cohen, apparel companies are definitely not on top of their game at the moment. "The apparel industry is not doing enough to keep their products front and centre for consumers," he warns.

"This is the least technically advanced industry these days; add in a lack of colour and style changes, and there truly is no excitement being generated, nothing to ignite consumers' passion. Apparel will be hard-pressed to keep its number one ranking as most often given gift."

That last prophecy may not be fulfilled until next Christmas, but there is much for the US retail sector to worry about in the meantime.

Economic turnaround?
Even the NRF cannot foresee any sign of an economic turnaround until the second half of 2009, with the housing market continuing to struggle, unemployment rocketing, pay rises plateauing and living costs remaining high.

And before that much-anticipated turnaround can happen, the pain in the retail sector - and therefore for all of its suppliers, not least apparel companies - will be severe in the first few months of the year.

Even those retail groups which have rationalised their store portfolio during 2008 will be taking a close look at loss-making outlets again early in the year.

Many will have held on in the hope that Christmas can deliver a much-needed boost to sales, and will have kept loss-making stores open in order to improve cash flow in the most crucial trading period of the year.

But with the beginning of January comes a new dawn of sobriety and realism. It's hard to see how the retail sector can avoid widespread store closures and further cutbacks on capital investment during 2009.

And that means a not very happy new year for apparel retailers and suppliers alike.