Upper and Lower Apparel Retail Segments Will Survive A Rough Holiday Season

Implications: While the very upper retail segment continues to perform well, off-price retailers and mass merchants will benefit most from a deteriorating economic outlook. Department Stores and Specialty Retailers must manage inventories skillfuly, in order to suvive the tough season ahead.

Analysis:

If you are like me and want to avoid crowded isles and long checkout lines while shopping for holiday apparel gifts this year, I would recommend a trip to a local department store or specialty retailer for a truly tranquil experience.

October comparative retail sales at stores like TJX ( Marshall's and T.J. Max) and Target were up 3% and 4.1% respectively but mid-level department stores turned in lackluster results. Kohl's was off a disappointing -3.8% as was Macy's -1.5, Nordstom -2.4% and J.C. Penny -1.8%. The rest of the segment was in the minus column, with the exception of Saks +10.6% and Neiman Marcus +8.5.

Most of the leading specialty retailers such as American Eagle, Chico's, Victoria's Secret and Ann Taylor were considerably down from last year and the trend (despite heavy promotions) is likely to continue. Even "affordable luxury brands like Polo Ralph lauren and Coach are cautioning investors about a soft forth quarter.

Chairman Bernake 's "somewhat optimistic" outlook certainly seems out of step with most shoppers this season, especially middle class consumers who are beginning to react to the well chronicled economic pressures of 2007.