Perhaps reacting to the retail industry's softening sales in August, respondents to Shopping Center World's fourth annual holiday forecast are not quite as optimistic as they were last year.

The majority of respondents still expect holiday sales and profits to increase over last year.

However, the percentage of these optimists has declined.

As shown below in Figure 1, 69% of this year's respondents believe holiday sales will rise, whereas 74% of last year's respondents predicted an increase.

As for profits, 56% of this year's respondents foresee growth, compared with 64% of last year's respondents expecting an upturn.

Of greater statistical significance is the difference in those who anticipate 1998's holiday sales season to be worse than 1997. This year, 7% of respondents fear a decline in sales - still a small percentage but double last year's 3.5%.

The response concerning profits appears even more telling. The survey suggests a 150% increase in the percentage of retail executives who foresee declining profits: 16% this year compared to 6.3% last year.

Consumer confidence Still, nearly half of respondents give a thumbs-up to consumer confidence (Figure 2), with 44% rating it high or extremely high and 52% rating it moderate. Interestingly, the Conference Board's measure of consumer confidence dropped sharply in September, the third consecutive month of declining confidence.

The survey asked what factors will make this holiday sales season different from last year. Cited most often are domestic economic conditions (positive or negative) - including consumer confidence, employment, the stock market, interest rates and inflation. Of the responses attributing a change to the U.S. economy in general, 21% specify a positive economy and 13% specify a negative economy.

The global economy is also on the minds of survey respondents, as are politics, with "Clinton problems," "Monica" and "the political scene in Washington, D.C." cited as factors likely to make this holiday season different.

What will shoppers buy? Respondents were given a list of retail categories and asked to check the ones they believe will show growth during the 1998 holiday season.

The most frequently mentioned category with expected growth is computer hardware/software, followed by electronics. Figure 3 shows the top eight categories in this year's study, with percentages from both this year and last year.

While more respondents this year predict the books category to increase (27% this year vs. 21% last year), several categories weigh in with lower percentages than last year, again suggesting a possible lessening of optimism: Gifts are down from 38% to 34%; home improvement from 31% to 28%; and men's apparel from 31% to 26%.

Also of note is jewelry, which does not make this year's list of the top eight retail categories. Last year, 33% of respondents anticipated jewelry sales to rise, compared with only 22% this year.

Retailers' success strategies Respondents will use multiple business strategies to be successful this holiday season (Figure 4).

The majority of respondents (63%) indicate they will place greater emphasis on customer service in order to be successful. Most respondents (62%) also plan to use in-store promotions.

As shown in Figure 1, there is more disparity between this year and last year regarding profits than exists regarding sales. Figure 4 suggests that retailers forecast fewer profits because they plan to increase operating expenses in order to boost sales: Methods include hiring more people to achieve better customer service, spending more money on in-store promotions, and increasing advertising as a percent of sales.

The least frequently mentioned strategy is markdowns, a tactic many retailers resorted to during the 1997 holiday sales season, as noted by Legg Mason retail analyst Sally Wallick in the SCW March 1998 issue. "When sales came late in the Christmas season," she said, "retailers got anxious to move their goods and discounted aggressively."

Advertising and other lessons As shown in Figure 5, 40% of all respondents plan to advertise more this year compared with last year.

The largest percentage of the survey sample (28%) plans to rely on newspapers as an advertising medium, while 24% will use direct mail (Figure 6).

Asked to share lessons learned from past holiday shopping seasons that have helped maximize sales, many respondents cite advertising. Several offer specific advice about advertising:

"Print (advertising) is worthless; radio and TV are the best forms."

"Weekly exposure in the local newspaper brings the biggest sales increases."

"Advertise early and often, with a simple but repetitive message."

"Keep ads geared to specific items."

"Limit your messages; have one primary reason for driving traffic to your store."

"Don't overspend on advertising."

Other frequently mentioned lessons learned include emphasizing good customer service and maintaining the correct inventory.

One respondent - perhaps the lone Scrooge in the sample - offers this advice: "Don't count on Christmas!"

About the Survey Data collection and analysis for this holiday forecast study were conducted by PRIMEDIA Intertec Corporate Planning and Research.

Questionnaires were sent in August to 1,000 Shopping Center World retail subscribers with the title of owner, partner, president or CEO. In all, 164 completed surveys were returned, with respondents representing a variety of retail segments, including apparel, gifts, drugstore, department store, housewares, restaurants, toys and others.

Approximately one-third of respondents are single stores, while two-thirds are multi-store chains. Of the multi-store respondents, 20% have more than 100 units in their chain.