September 28, 2005, 12:00 AM

Q4 online sales will set a record, but offline sales will be a challenge

Online holiday shopping this year will set another record, up 22% from a year ago, projects eMarketer. Offline sales will grow 5.5%, projects retail consultants Retail Forward.

Online holiday shopping this year will set another record, reaching $26.2 billion, up 22% from Q4 a year ago, projects researchers eMarketer Inc.

"We expect to see strong sales gains this year, driven largely by shoppers shifting their purchases online," says Jeffrey Grau, eMarketer senior analyst and author of the report “Online Holiday Shopping Preview.” "Several factors are behind this growth-a longer shopping season on the Internet; improved order fulfillment, which allows shoppers to make purchases nearly until Christmas; and intense competition among online retailers, which leads to aggressive promotions, all benefiting the deal-seeking consumer."

Online shopping growth will continue to outstrip offline, which retail consultants Retail Forward Inc. projects to be 5.5%, almost exactly the average Q4 growth since 1990 but the slowest since 2002. Key sectors of retail-general merchandise stores, supercenters, warehouse clubs, apparel stores, furniture, home furnishings, consumer electronics and other specialty stores-will experience 5% growth, Retail Forward predicts.

Retail Forward confirms eMarketer’s estimate, projecting Q4 online sales at $27 billion.

Retail Forward expects growth at conventional and national department stores to be nearly flat, although high-end stores will continue to perform well. Retail Forward adds: “Stronger discounting, competitive pressures, fewer compelling fashion trends, accelerated deflation and tough year-ago comparisons will contribute to a weaker holiday season at apparel and shoe stores.” It expects strong sales at supercenters, warehouse clubs and consumer electronics and appliance stores, with very strong sales at home improvement stores, boosted in part by rebuilding in the wake of Katrina and Rita.

Meanwhile, Deloitte Research`s Leading Index of Consumer Spending paints a gloomier picture, projecting that weakening home prices, a rising tax burden, slow job growth, rising inflation and Katrina could dampen consumer spending in Q4.

“Retailers face hurdles in the coming months,” says Carl Steidtmann, chief economist of Deloitte Research and author of the monthly index. “A natural disaster of this magnitude will almost certainly have a negative impact on consumer spending in the short run, and will likely hurt some retail segments during the upcoming holiday season.”

Deloitte also reports:
• Initial unemployment claims fell slightly in August and are still below 2004 levels.
• Real wages continue to decline at a slow pace. The sharp rise in gasoline and home heating prices will hurt consumer purchasing power in the fall and winter.
• Real new home prices fell again in July and are down slightly from 2004 levels.

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