Predictions matter more to stores than shoppers

With the onset of the holiday season comes the inevitable onslaught of retail forecasts. Predictions are often wildly different, yet stores, Wall Street analysts, and the media zealously follow the reports. Here are some answers on why they're so closely watched:

Q: Do holiday retail forecasts matter?

A: ''We're all whistling Dixie in a snowstorm in Maine if we think American consumers pay attention to our predictions," said C. Britt Beemer, founder of America's Research Group, a consumer-behavior research firm in Charleston, S.C. ''I don't think the forecasts matter to anybody."

Other analysts say these predictions are used as a loose guide for retailers as they go through the holiday season. If merchants are below growth forecasts, they might increase discounting and promotions to drive more traffic to the stores, said Scott Krugman, a spokesman for the National Retail Federation, a trade group in Washington, D.C. On the other hand, if analysts are forecasting a strong holiday season, companies may increase inventory to be well-stocked for the large shopping crowds.

Q: After the forecasts come weekly sales updates. Why is there so much focus on the holiday retail season?

A: A Goldman Sachs report earlier this week compared the start of the holiday season to a baseball game, with everyone watching reports like a hawk and ''many eager to pronounce the game won or lost depending on what happens in the first inning."

The reason for such scrutiny is simple: Holiday spending is crucial for retailer success, according to Darrell Rigby and Kris Miller, retail analysts with Bain & Co. In 2004, holiday sales made up 20 percent of total retail sales. For many stores, the holidays are a ''make-or-break season" that gives them 25 to 40 percent of their sales for the year and an even greater share of profits.

Q: I don't own or work in a store, nor do any of my immediate family. Why should I care if the Gap has a good holiday?

A: Consumer spending is key to the broader economy, said Mark Zandi, Moody's Economy.com's chief economist. Consumer spending accounts for 70 percent of the gross domestic product, or the total value of all the goods and services produced in the United States. The kind of things people buy during Christmas time accounts for 40 percent, Zandi said. If people are out shopping aggressively during the holidays, that means more jobs, income, and future growth. If people are not spending, Zandi explains, it means fewer jobs, less income, and slower growth.

''Christmas is a barometer of just how well the economy is performing and how it will do in the coming year," Zandi said. At the same time, holiday spending, he added, is increasingly less important because Christmas used to account for a larger portion of shopping than it does today.

Q: Do consumers follow the retail sales updates? Will a bad prediction mean that shoppers will wait for stores to discount?

A: No. Almost everyone agrees that consumers are more likely to read the back of a milk carton than to peruse retail sales updates. Most people make a decision on how much they will spend before the holiday season starts, and then go out and spend it, Zandi said. Consumers adjust budgets based on job security, energy prices, home values, stock prices, and bonuses.

Q: How do stores view holiday sales predictions?

A: ''These retail forecasts are a little like the weather," said Margery Myers, a spokeswoman for Hingham clothing chain Talbots Inc. ''You can drive yourself crazy trying to determine what they mean to your business. I can't say we don't pay attention to them. They're always in the background. But in terms of actual planning, we have to use what we know and things we can control."

So Talbots executives will read the reports, but the chain, like other merchants, has little room to make major changes during the holiday season -- advertising and inventory are usually planned months, if not a year, in advance.

Still, Myers said retailers try to maintain some flexibility to react to things they can't foresee. For example, after conducting its own customer research in late September, Talbots decided to aggressively expand its marketing program for the holidays given the uncertain consumer environment. ''You can't live life by these forecasts," Myers said. ''But they are interesting to read."

Jenn Abelson can be reached at abelson@globe.com.