A holiday season of high unemployment and nervous consumers would seem to dictate coal in the stockings of all retailers and their shareholders, yet some have reason to be jolly.

It's a matter of being in the right place at the right time despite a weak economy.

One discounter, for example, is a major beneficiary of merchandise that department stores had to turn away in order to limit their holiday inventories. Meanwhile, a trendy apparel retailer is expected to post gains as the well-to-do decide to make do with less.

TJX Cos., owner of T.J. Maxx, Marshalls and HomeGoods, will have more popular brands and more variety than usual this holiday season because department stores have been sending more of their merchandise its way, according to industry experts. This combined with its off-price strategy should result in strong sales.

J. Crew Group Inc., with a reputation for quality apparel for young adults at reasonable prices, has enjoyed rising sales this year as its fashion trends have hit the mark. Many consumers who could afford designer clothes elsewhere are turning to J. Crew because they don't consider this the right time to spend a lot of money on clothes, say industry experts. They still want quality while trading down in price.

The fact that first lady Michelle Obama has worn J. Crew clothes everywhere from "The Tonight Show" to London's 10 Downing Street also raises brand recognition considerably.

Consumer electronics should be another bright spot this season because the latest cell phone crazes are hot products for young people. Best Buy Co., >Wal-Mart Stores Inc. and Costco Wholesale Corp. are competitive in this youth-oriented segment.

Yet larger retail trends indicate most retailers are being every bit as cautious as their customers.

The National Retail Federation predicts a 1 percent decline in sales this holiday season. While that isn't as dramatic as last holiday season's 3.4 percent drop, the 10-year average for holiday growth has been a 3.39 percent gain.

"Since last Christmas season was the worst in over 70 years and retailers were ill-prepared for the disaster, it is unlikely to get much worse this year," said Richard Jaffe, soft-lines retail analyst with Stifel Nicolaus in New York. "They're living the phrase 'once burned, twice shy' and won't be caught with excess inventory."

Demand has already been better in 2009 than last year, a trend that should continue through the holidays, Jaffe said.

"Flat sales this year would actually be considered good, since employment has gotten worse and the consumers more cautious," said Marie Driscoll, retail analyst with Standard & Poor's Corp. in New York. "Since inventory is worth 20 percent less the day after Christmas, retailers will play a game with each other as to who marks down prices first."

Stores will aim to have new, full-price merchandise sitting on their shelves when consumers come in with post-holiday returns or gift cards, Driscoll said

"Consumers will remain fixated on value throughout the holiday season, which will make the retailers promotional-minded," said Kim Picciola, senior retailing analyst with Morningstar Inc. in Chicago. "Retailers that can offer consumers the best value will win out."

Last year all stores panicked early and started slashing prices, but Picciola doesn't expect a repeat of that.

"Major retail chains now have better access to credit, but credit for smaller firms has been cut back sharply," said Scott Brown, chief economist with Raymond James & Associates in St. Petersburg, Fla. "There's been a shift toward more moderately priced goods likely to move much more quickly."

Not until jobs become more plentiful will consumers feel better about spending, said Brown. Rather than inundate their children with gifts, parents may decide to buy three or four items that they really want, he said.

From the stocks noted earlier, TJX (TJX) is recommended by Driscoll and Jaffe, while J. Crew (JCG) is a choice of Driscoll and Picciola. Wal-Mart (WMT) is recommended by Brown, Picciola and Driscoll. Best Buy (BBY) and Costco (COST) are also Driscoll picks.

Urban Outfitters Inc. (URBN), whose "lifestyle" apparel stores include Anthropologie, has unique merchandise and its sales have held up well. It is recommended by Jaffe and Picciola. American Eagle Outfitters (AEO) is a favorite of Jaffe based on its extensive assortment of casual apparel for teens and young adults.

Coach Inc. (COH), a premium accessories brand with an enviable reputation, is recommended by Driscoll. She also said that some of the brands of V.F. Corp. (VFC), such as The North Face and Vans, are solid sellers certain to boost results this holiday season.

Gap Inc. (GPS) should benefit from a turnaround at its Old Navy division, which has "gotten back into the DNA of young moms and their kids," said Jaffe. Driscoll agrees that Old Navy's aggressive marketing, improved product line and lean inventory bode well, but she still considers the company's Banana Republic division to lack proper focus.

Retailers will be promotion-minded without ruining profit margins this time.

"If a retailer wants to sell a cashmere sweater for $99, it will price it at $140 and then mark it down by 30 percent," Jaffe said. "It planned that promotion so it is still making full margin while moving merchandise out the door."

 

 

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Investing - Holidays May Be Merry for Some Retailers

(c) 2009 Andrew Leckey