The 2009 holiday retail sales projections are out and experts are divided over whether retailers can expect improved or disappointing sales during the all-important 'make-or-break' shopping period.

“This year’s holiday season spending will be a lot better than last year,” asserted Michael P. Niemira, chief economist and director of research for the International Council of Shopping Centers ("ICSC"). “The wear and tear of the recession and financial crisis on the consumer psyche is slowly giving way to renewed hope, optimism and, most likely, gift buying,” he said.

ICSC forecasts 2009 holiday "shopping center-inclined" sales (which includes sales at GAFO stores (which includes general merchandise, clothing, furniture, electronics, sporting goods, media, hobby, office supplies) and gift stores; plus health, personal care, and food and beverage retailer sales) to increase by 1.8% over 2008, a big swing from last year's actual loss of 3.5% in sales over 2007. The organization's Chain Store Sales Index, which measures select publicly traded chain store retailers that share monthly sales results, is projected to post a meeker 1% gain for the season.

The National Retail Federation (NRF), on the other hand, projects holiday retail sales to decline 1.0% year-over-year, to $437.6 billion. If the NRF is right, this would compound the 3.4% drop the NRF recorded for the 2008 holiday season. To put this in perspective, the NRF said the average sales growth over the past 10 years has been 3.4% each holiday season.

“While the economic climate has shown some improvement from last holiday season, retailers are not out of the woods yet,” said Phil Rist, executive vice president, strategic initiatives, BIGresearch. “With a variety of factors still up in the air, including uncertainty over job security, many Americans just aren’t buying into the talk of recovery.” The NRF added that consumers also continue to be uncertain about housing values and finding value and practicality will drive their 2009 holiday shopping.

“In 2008 retailers experienced a perfect storm just prior to the holidays as gasoline prices remained high, the financial markets collapsed and the presidential election distracted consumers and slowed shopping - equaling the worst year-over-year losses in holiday retail sales in over 40 years,” said Bill Martin, co-founder of shopping center industry shopper foot traffic service, ShopperTrak. “While retailers still haven’t recovered from this blow, energy prices have retreated, foreclosures have stabilized, unemployment is rising at a slower rate, and our data shows retail traffic has been slowly increasing, which indicates consumer sentiment could be rising heading into the season.”

This rise in consumer sentiment, however, likely won't be enough to bring retailers' sales for the holiday season back to 2007 levels, predicted Martin. ShopperTrak is projecting a 1.6% year-over-year increase in retail sales for the months of November and December combined. If realized, this represents only a small recovery from the 5.9% in sales that retailers lost during the 2008 holiday season.

In its just-released Shopping Center Executive Survey ("SCE") for October, ICSC asked shopping center executives' what they expect holiday sales (in terms of percentage growth) to end up in 2009 compared to 2008. Results were split nearly equally across the board: 36% expect sales growth o be "higher" or "much higher", 28% expect sales growth to be the same, and 36% expect sales growth to be "lower" or "much lower."

Also as part of this survey, shopping center executives reported that sales, customer traffic and occupancy rates were all in a better position this October as compared to last year. However, these indices are hovering around 40%, which still indicates deterioration in shopping center business conditions.

The thousands of stores that shuttered over this past year, in particular, have obviously impacted occupancy. But in its report, ICSC noted a silver lining: "The stores remaining open during the upcoming holiday season will be stronger" as a whole than they were in 2008, said ICSC Research.

ShopperTrak was less optimistic on customer traffic. Following a year-over-year decline of 5.2% in U.S. foot traffic for September, the service predicts that total U.S. shopper foot traffic during the 2009 holiday season will decline 4.2% in comparison to last year. This is disheartening news considering that during Holiday 2008, ShopperTrak said total U.S. foot traffic fell a staggering 15.4% as compared to 2007.

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Last month, NRF released its annual Holiday Consumer Intentions and Actions Survey, conducted in cooperation with BIGresearch. This year's survey showed that U.S. consumers plan to spend an average of $682.74 on their holiday shopping, which is a 3.2% drop from what consumers planned in 2008 and a staggering 16.2% drop from what they budgeted in 2007.

Results from ICSC/Goldman Sachs' 2009 Holiday Spending Survey of U.S. consumers, released Nov. 4, showed that consumers plan to spend $676 on holiday gift shopping this year, which is down 4.3% over consumers' plans last year in the survey (although much of the decline was attributed to the amount consumers are expected to spend on gift cards.) Niemira believes consumers will end up spending more than they plan, however. "Despite what consumers now expect, ICSC Research thinks the holiday spending performance will be better than these pre-season consumer expectations, which is often the case following business cycle turning points in the economy," he said.

Ongoing deep discounting throughout this recession, however, may hold back an improvement in holiday sales, said ICSC. Last year, about one-third of consumers, driven by retailers slashing prices in November, bought gifts for themselves, according to ICSC's survey. This year, warns ICSC, we may not see that same behavior, as consumers have gotten used to retailers' consistent discounting practices throughout this recession.

Considering this focus on value, where do consumers plan to shop? 70.1% of respondents said they would shop at discount stores, followed by department stores (55.8%), grocery stores (45%), the Internet (42.4%), clothing stores (33.8%), electronics stores (31.8%) and resale shops (11.4%). In comparison to last year, the only category to gain shoppers is discounters. Moreover, the NRF expects highly aggressive promotional activity could result in the unwanted effect of deflation, particularly in the electronics and apparel categories.

BIGResearch pointed to a few specific retailers, projecting holiday same store sales growth to be most likely at retailers including Ross, TJ Maxx, BJ's, Fred's, Aeropostale and Buckly; but same store sales depletion at retailers including JC Penney, BonTon, Dillard's, Stage Stores, Neiman Marcus, Nordstrom, Saks, Gap, Abercrombie & Fitch, American Eagle, Banana Republic, Hot Topic, Wet Seal, Children's Place, and Cato's.

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In recent third quarter financial calls with analysts, some leading retail REIT executives commented on their expectations for the upcoming holiday season.

At Simon Property Group (NYSE:SPG), Chairman and Chief Executive Officer David Simon said, "We believe our retailers will have a decent holiday season. The mood from our clients is better, and they’re thinking more about 2010 and hopefully, they’ll have a positive holiday season and the store count will grow in 2010, but there’s a level of uncertainty out there."

Ronald Rubin, Chairman and CEO of Pennsylvania Real Estate Investment Trust (PEI) said, "As we enter the holiday season, we are not anticipating significant changes in market conditions. We believe that consumers will be shopping carefully with a focus on value."

Johnny Hendrix, executive vice president at Weingarten Realty Investors (WRI) matched this sentiment, surmising "things are leveling out," adding, "Most retailers we have talked with have projected flat sales for Christmas, even against nominal comparables for last year."

Steven Tanger, founder of Tanger Factory Outlet Centers (NYSE:SKT) said he expects consumers will "continue to be very cautious and deliberate in spending their disposable income" this holiday season. "In good times people like a bargain and in tough times like these they need a bargain," he added, saying that because of its off-price format, Tanger is looking forward to its retailers reporting positive same store sales at their Tanger outlet stores this season.

"We remain cautiously optimistic for the holiday season as the consumer clearly prefers and is aggressively seeking value and convenience," said Daniel B. Hurwitz, president and chief operating officer of Developers Diversified Realty Corporation (DDR). He stressed the importance retailers' holiday sales have on retail landlords, explaining that "the impending impact of holiday sales" will be the "primary influence on occupancy" for the company in the first quarter of 2010 and beyond.

Marshall Loeb, president and COO of Glimcher Realty Trust (GRT) echoed Hurwitz' sentiment, "retailers are wisely remaining cautious, but we are seeing a growing pipeline of new deals. We believe a solid holiday season from the retailers is the next step to help fill that pipeline."

Simon said it is holding off on some leasing activity until after the holiday season in hopes that a better holiday season will help the landlord to negotiate better deals. "Virtually all of the retailers are getting upgrades and more positive outlooks based on the expectation that there’s going to be a more profitable Christmas, which may or may not be related to more sales," said Simon, adding, retailers, too "want to wait and see how they shakeout and the trend may [end up] working in our favor."

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Impact of Inventory Cutbacks
Loeb said that retailers have been smart in their holiday planning, "with the solid jobs most retailers have done managing their inventories and costs, we believe most will have an opportunity and improve profitability this holiday season."

Retailers have been planning for 2009 to be "another challenging holiday season," said NRF President and CEO, Tracy Mullin. To compensate, retailers have been "cutting back as much as possible on operating costs in order to pass along aggressive savings and promotions to customers.” In part, they've done this by cutting back on inventory. In September, the NRF said traffic to the nation’s ports had scaled back to a low level not seen since 2003.

Not only would this inventory cutback prevent oversupply and unplanned markdowns at the end of season, but it also means that retailers won't be able to restock the most popular gift items this season, said Mullin.

Hurwitz said, "Retailers continue to prove their resilience and display their ability to control inventory levels and buy right, which should lead to lower clearance levels and less gross margin deterioration compared to last year. While lowering inventory levels are generally a positive strategy in a recessionary environment, it could also create headwinds for retailers if the consumer returns to the store in greater numbers than expected and inventory is sparse."

Muted Impact Seen from CIT Bankruptcy
With CIT Group's bankruptcy filing over the weekend, many were concerned that retailers' inventories would be cut back beyond their control due to the fact that CIT provides specialized “factor” financing to about 2,000 suppliers who furnish goods sold at about 300,000 retailers across the country, a move that would be expected to further adversely impact holiday season retail sales. Mallory Duncan, SVP and general counsel at NRF debunked this concern, however, saying that retailers dodged the bullet. "At this point, most merchandise for the holiday season is already in retailers’ distribution centers if not on store shelves, with more goods sufficiently advanced in the pipeline that they will be here soon. If there is to be any holiday impact from CIT, it might come in terms of restocking," she said.

If consumers become keen to these low inventories, it may drive them to shop earlier. "Whether they’re shopping to get the best selection or trying to stretch out spending over a longer period of time, many holiday shoppers are starting early," said the NRF.

Weighing in on retailer's lean inventory strategy, ICSC said, "Although many retailers say sales will be weak because of the intentional slash in inventories, lean inventories and an improving economy is a favorable combination for retailers that “price right” for this environment; they are positioned to withstand any heavy and unplanned discounting that both lowers reported sales and margins." Plus, said ICSC, we saw before in 2001 that sales could pick up appreciably when inventories were lean; therefore, "inventories will not necessarily prevent stronger holiday sales and margins."

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