Originally created 01/18/06

Picky shoppers keep challenging merchants



NEW YORK - Shoppers who frustrated the nation's retailers by being choosy and waiting until the last minute for bargains during the winter holidays are expected to continue challenging merchants in 2006, particularly discounters and midlevel department stores.

High energy costs, modest wage increases and a slowdown in the housing market are expected to restrain consumer spending, forcing retailers to come up with new ways to excite the shopper.

Home furnishings stores, which had a mixed performance last year, will likely show more signs of weakness as shoppers may spend less on their home. And midprice department stores will continue to struggle amid competition from stores such as Target Corp.

Hot pockets remain luxury stores and consumer electronics chains. Meanwhile, sales of accessories, particularly handbags, should continue to do well. Upscale retailer Coach Inc. reported that its female customers are buying nearly an average of four handbags - at more than $150 apiece - a year, compared with two a year in 2000.

But attracting shoppers goes far beyond just stocking up on the right merchandise.

"I walk through an American Girl store. And that's an experience," said Michael Gould, the chairman and CEO of Bloomingdale's, in an address to industry executives at a seminar late Monday sponsored by investment banking firm Financo Inc. He was referring to the Mattel Inc.-owned popular doll brand, whose stores have tea rooms and hold theater performances.

"We need more animation in the stores," said Mr. Gould, noting that Federated Department Stores Inc.'s Bloomingdale's is studying ways to have more thematic fashion events. He's also looking at putting less on the floor. Bloomingdale's is renovating its lingerie department at its New York flagship, eliminating 40 percent of its lingerie offerings while expanding its fitting rooms.

The good news is that shoppers - and the economy - showed surprising resilience last year amid a series of devastating hurricanes, a spike in gasoline prices and higher interest rates.

Even the holiday shopping season, saved by the last-minute spending surge, ended up being respectable for merchants, though not spectacular.

But analysts predict a spending slowdown as shoppers see their disposable buying power reduced. This winter could be a challenging one for merchants as customers will be forced to budget more amid higher heating bills.

Another big concern is a cooling housing market; the windfall from home equity refinancing - which gave consumers extra cash to spend - is fading. Another big question mark is the employment market; the job market has steadily improved, but wages aren't keeping up with inflation.

The National Retail Federation, which is holding its annual convention this week, predicts a 4.7 percent gain in total retail sales this year, less than the 6.1 percent growth achieved last year.