With economic concerns contributing to sluggish early holiday sales reports, Standard & Poor's Equity Research Services believes that consumers will focus their spending on broadline and discount retailers this season.

According to a 2007 Standard & Poor's Equity Research Services poll of consumers regarding holiday spending, 82% plan to shop at discounters and 40% at department stores. While Standard & Poor's Equity Research Services believes overall spending will slow to a 3% to 3.5% rate of growth in the current holiday season versus the average gain of 4.8% in the past 10 years, these retailers may stand to gain, as more than half (53%) of consumers polled see their biggest 2007 holiday spending increase coming from in-store purchases.

The survey showed that among respondents, there was a preference for national retailers associated with heavy discounting and strong price-value propositions. The one-stop shopping convenience and low prices of big-box discounters, such as Wal-Mart (WMT: Hold; $48) and Target (TGT: Hold; $52), are particularly appealing, in our view, as consumers look to stretch their holiday dollars. In turn, super centers are looking to grow sales by increasing fresh food offerings, along with exclusive and branded products.

"We expect the aggressive price cutting in toys, food, apparel and home merchandise, which started earlier in the holiday season, to continue," says Joseph Agnese, Super Centers Analyst for S&P Equity Research Services. "Discounters are well positioned to benefit as consumers facing seasonal factors, such as higher energy costs, trade down to lower-priced goods and take advantage of late discounts on products, including electronics."

Among those surveyed, apparel is at the top of most shopping lists. Standard & Poor's Equity Research is anticipating stronger sales in men's apparel than women's, due to a perceived lack of fashion must-haves this season and expected markdowns. We also anticipate stronger sales growth in fashion and fine jewelry, cold weather accessories, and perfume, although European luxury branded apparel and accessories may be hurt by price increases attributed to a weak US dollar.

"The slowing economy and dollar depreciation may cut into the purchasing power of the aspirational shopper, which is a growing segment for upscale chains," notes Jason Asaeda, Retail Analyst with Standard & Poor's Equity Research Services. "As moderate-price shoppers once again hold out for last- minute deals, we believe promotional activities will be key sales drivers for department stores, such as Macy's Bloomingdale's division (M: Hold; $27) and Saks Fifth Avenue (SKS: Hold; $21). However, this has also created an opening for retailers like Kohl's (KSS: Buy; $46) and T.J. Maxx (TJX: Buy; $29), in our view, as an increased number of consumers shop off-mall and off price for items, including home merchandise."