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The upcoming holiday season doesn't look promising, either for retailers or the consumers to whom they cater. Depressed temporary hiring in a ho-hum consumer spending environment, especially with many shoppers out of work, may create a self-fulfilling prophecy of a depressing holiday season.
Of the 25 biggest retail chains, about 40% plan on hiring between 5% and 25% fewer temporary employees this holiday season, according to a Hay Group survey as reported by The Wall Street Journal. That's worse than last year, when only 29% of the retail firms surveyed said they planned fewer hires. And these proposed cuts come on top of cuts already made at retailers in order to boost margins.
Among those companies surveyed were Best Buy (NYSE: BBY ) , American Eagle Outfitters (NYSE: AEO ) , and Saks (NYSE: SKS ) . Firms planning to increase the number of temporary workers include Macy's (NYSE: M ) and J.C. Penney (NYSE: JCP ) , but there have also been plenty of rumblings about at-risk retailers. Macy's in particular was recently marked for death by risk-modeling firm Audit Integrity. So was Rite-Aid (NYSE: RAD ) , which just today reported yet another dismal quarter.
The Federal Reserve may have recently talked positively about the economy picking up a bit, but make no mistake, a "jobless recovery" is no walk in the park. The unemployment rate is still at historic highs. Consumer spending still represents some 70% of GDP, and many jobless consumers will find it more difficult to even find temporary jobs. Normally, the end-of-year holidays provide about 700,000 temporary jobs. If, as predicted, retailers reduce their holiday hiring by 10% to 20%, that could represent 100,000 fewer jobs this year.
This lack of hiring may hurt retailers' sales, too. Employed retail workers are more likely to shop, especially with employee discounts. On the other hand, given the prospect of flagging sales, retailers shouldn't overhire in light of expected demand; they need to keep costs down.
The holiday quarter is very important to retailers, and this year's holiday will certainly break some of the weaker names. Make sure your portfolio only includes the strongest retailers, especially those that aren't overly indebted or second-string players. That means focusing on the Wal-Marts (NYSE: WMT ) and avoiding the Abercrombie and Fitches. Otherwise, retail could raze your portfolio after this gloomy holiday season plays itself out.