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Retailers aren't feeling the holiday spirit

Toys R Us files for bankruptcy

As retailers head into the critical holiday shopping season, consumers appear to be in a buying mood. After all, unemployment is at a 16-year low, and stock prices are surging. Still, the battered retail sector is struggling to adjust to the growth in online shopping.

Consumers are expected to spend between $1.04 trillion and $1.05 trillion between November and January, on a seasonally adjusted basis excluding motor vehicles and gasoline, according to a forecast released Wednesday by Deloitte. That represents a gain of 4 percent to 4.5 percent over last year, which chains such as Macy's (M), Target (TGT) and JC Penney (JCP) described as disappointing. Spending in 2016 rose 3.6 percent.

E-commerce has been a bright spot in an otherwise gloomy sector, even though most transactions continue taking place in physical stores. According to Deloitte, web sales will reach $111 billion to $114 billion during the holidays, an increase of 18 percent to 21 percent over last year when they jumped 14.3 percent.

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"Last year, disposable personal income grew 2 percent over the year to the holiday period, and we may see that rise to a range of 3.8 percent to 4.2 percent this season," said Deloitte Senior Economist Daniel Bachman in a press release. "Consumer confidence remains elevated, the labor market is strong and the personal savings rate should remain stable at its current low level."

The seemingly never-ending battle in the U.S. Congress over the debt ceiling, which enables the government to keep borrowing money to pay its bills, could dampen consumers' holiday spirit, according to the consulting firm. But Deloitte isn't sure if the "unusually active hurricane season" will depress spending or will increase it due to a surge in rebuilding.

Many retailers, which earn most of their profits during the holidays, are bracing for the worst.

Toys "R" Us this week filed for bankruptcy protection, citing among reasons fierce competition from Amazon (AMZN) and other rivals that are forcing the retailer to slash prices in order to entice consumers to its stores. A crushing debt load from a 2005 leveraged buyout, including $2.2 billion maturing in its next fiscal year didn't help matters.

Target recently announced that it would slash prices on thousands of products ahead of the holiday season. Earlier this year, the Minnesota-based retailer told investors it would cut prices to better compete against Amazon and Walmart (WMT). Still, Target is ratcheting up seasonal hiring by 40 percent as it tries to gain an edge in an increasingly competitive market.

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