A good, not great, holiday season predicted for retailers

Retailers, including Target and Best Buy, are feeling a bit cheerier heading into this holiday season.

Target gave an upbeat assessment Wednesday, reporting that third quarter net income rose 23 percent to $535 million. Best Buy joined other big retailers in offering free shipping.

"Recent retail reports have shown consumers are a bit more eager and willing to spend this year."

Retailers are expecting consumers will spend more freely than they have in the past two years, but they could be disappointed.

The National Retail Federation, a leading industry trade group, is forecasting a 2.3 percent increase in sales for November and December, That won't make for a spectacular Christmas for retailers, but it'd be a lot better than recent ones. Sales were flat last year, after falling about 4 percent in 2008.

"Recent retail reports have shown consumers are a bit more eager and willing to spend this year," said Kathy Grannis, a spokeswoman for the National Retail Federation. "The 2.3 percent increase is a cautious, optimistic look."

In better times, retailers have enjoyed 8 percent sales increases.

Forecasts about holiday spending range from optimism to pessimism. A survey released today by America's Research Group indicated about a fifth of consumers plan to spend less this Christmas, while only about 3 percent plan to spend more.

TARGET CEO HOPEFUL

But at Target, CEO Greg Steinhafel sees an economy on the rebound.

"While consumers remain conservative in their purchasing behavior, we are encouraged by recent signs in the broader economy that may signal somewhat stronger and more stable sales in coming months," Steinhafel said.

Target is expecting a relatively good holiday shopping season, the best in three years, with sales up 2 to 4 percent at stores open for at least a year -- a key benchmark.

During the first two weeks of this month Target said revenue at so-called "comparable stores" are up about 5 percent.

The company credits expanded grocery sections and a new discount program. Shoppers using Target credit or debit cards get 5 percent off every purchase.

Target said the incentive is enticing its most loyal customers to shop more. In this quarter, Target expects the discount program will boost its total sales by about 1 percent. It says increased sales make the discount program profitable.

Dave Heupel, an analyst with Thrivent Financial for Lutherans, said the discount also helps Target convince shoppers it's the place to go to stretch dollars.

"I think it helps shrink that value benefit that Wal-Mart usually had against Target, at least on a perception level," Heupel said.

3 PERCENT BOOST PREDICTED FOR BEST BUY

Analysts, on average, are forecasting about a 3 percent holiday sales increase for the other big retailer headquartered in the Twin Cities, consumer electronic giant Best Buy.

Best Buy CEO Brian Dunn said he expects many consumers won't shop early, taking a just-in-time approach to holiday shopping. But Dunn expects strong sales of smartphones, tablet computers, such as the Apple iPad, and gaming systems.

Morningstar analyst R.J. Hottovy said people tend to prize the electronic toys Best Buy sells and they'll focus their spending on them.

But Hottovy said a flush holiday season for retailers is hardly guaranteed, adding that most consumers will buy only when they see good deals.

"The consumer mindset is still pretty fragile," Hottovy said. "I don't expect a material amount of splurging this Christmas season I think we're still looking at a pretty frugal consumer."

Best Buy has joined Target, Wal-Mart and other retailers in offering an extensive free shipping deal for online purchases. It's not much different from what Best Buy and other retailers offered last year, but analysts say consumers expect free shipping and other enticements -- like big price cuts and greatly extended store hours -- to get them to spend these days. And worried retailers are complying, hoping for at least decent holiday sales.