Oct. 4--Retailers got some bad news yesterday at the Retail Merchants Association's annual holiday forecast breakfast: Sales growth will be lower this holiday season.

Citing a litany of economic troubles, panelist Alan M. Gayle, senior investment strategist at Atlanta-based Trusco Capital Management Inc., and Scott Krugman, vice president of public relations for the Washington-based National Retail Federation, discussed the challenges facing retailers as the all-important holiday season approaches. The holidays are retailers' busiest time of year.

The federation and other retail organizations are forecasting weaker sales growth than in previous years.

Krugman said retail sales would increase 2.2 percent this holiday season from last year. Sales grew 3 percent last year, when the federation predicted 4 percent growth. Holiday sales have grown an average of 4.4 percent during the past 10 years.

Gayle said he expected sales to rise 1 percent to 2 percent from last year's holiday season.

He attributed his gloomy outlook to a continuation of the economic problems the country has been dealing with most of the year, including tighter credit standards, a weak housing market, high energy costs and uncertainty in the job market.

Retailers, aware of weak forecasts, have adjusted inventory and staffing levels to try to keep spending under control, Gayle said.

But some things are beyond their control.

Gift cards are one area in which retailers are vulnerable on two fronts, Krugman said.

For one, consumers might use the cards for necessities such as groceries and personal items instead of something on their wish list, which is a trend Wal-Mart Stores Inc. identified earlier this year, he said.

The other problem is that consumers looking to spend less could choose to buy discounted merchandise as gifts. Instead of buying a $50 gift card, consumers could choose to buy a $50 sweater that is discounted 40 percent, he said. That would deprive the retailer of revenue because the gift card would be sold for the full $50.

Bob Phibbs, a retail consultant who moderated the panel, said retailers need to focus on their customers, not the economy.

Ken Wayland, president of Free Agents marketing in Richmond and a member of the Retail Merchants Association, said he's advising one of his clients, a car dealer, to better target his marketing.

"Instead of focusing on the 90 percent [of the market] who don't buy cars from him, we are focusing on his existing customer base," Wayland said.

Tom Lind, co-owner of South Pole Toy Store in Richmond, said he doesn't pay too much attention to the negative economic news and is "more concerned with [taking care of] our clientele."

Yet tough economic times could be good for Lind. While he said business slowed as gas prices skyrocketed this year, he should be OK during the holiday season.

"People always buy toys for Christmas," he said. "And in my 18 years in the business, we've always run opposite of mass market stores. When things are going well we don't do as good as when things are sluggish. I can't explain it."

Contact Louis Llovio at (804) 649-6348 or LLLovio@timesdispatch.com.

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