Deloitte & Touche conducted this year's annual survey against a backdrop of cautiously improving economic indicators squaring off against low consumer confidence numbers. With the holiday shopping season shifting into high gear, Deloitte & Touche LLP expects a warming trend in consumer spending to drive modest retail sales growth. The firm's Consumer Business Practice anticipates a 3- to 4-percent increase during November and December in the important General Merchandise, Apparel and Home Furnishings (GAF) sales figures. Last year, GAF sales rose 5.6 percent during the same period.

When asked why they'll spend less, Twin Cities respondents cited concerns about the economy (34 percent), salary decreases (26 percent) and high personal debt (24 percent), as the three most important reasons. Eleven percent of employed respondents said their jobs are "not very secure," compared to nine percent in 2000.

Focus on Home

"Like many other cities around the country, Minneapolis has seen continued corporate layoffs over the past year, clearly influencing the amount people plan to spend this holiday season," said Bradley Fritz, a partner in the Minneapolis Consumer Business Practice. "This doesn't mean that consumers are going to drastically reduce their purchasing, though. Instead, local shoppers will spend their money carefully on items they can enjoy in and around their houses and for home entertaining. It's as if local residents are recuperating from the tough economic year by staying close to home."

The Twin Cities' sustained healthy housing market fueled by the lowest mortgage rates in years may also affect how people spend their hard-earned cash this year.

"Our survey shows that an average of $502 -- a full 31 percent of the amount consumers in the Twin Cities plan to spend this year -- will go towards home improvements and home furnishings," said Fritz. "Consumers' general intention to use their holiday gifts as a means to improving and enjoying their homes on a long term basis is consistent with the continued local activity in home purchasing and mortgage refinancing. People recognize the long-term value of spending money on home improvements versus the short-term value of many other types of holiday gifts."

Convenience is Key

Holiday shoppers have their sights set on convenience: when asked the primary reason behind which shopping channel they choose, respondents ranked "convenience" and "value for the money" first, followed by "selection," and "low prices." In addition, 58 percent said they would like to see all department stores have shopping carts. Fritz also noted that convenience is one of several factors contributing to the growing popularity of online shopping.

"Each holiday season more local consumers plan to purchase gifts online. This year is no different, as 42 percent of local shoppers are planning to buy gifts on the Internet," said Fritz. "For the Internet retailers who survived the dot-com shake out, this usage coupled with limited competition could position them for their best holiday season yet."

A significant increase in the portion of holiday budgets spent on gift certificates is another indication that shoppers crave convenience. Gift certificates were clearly the most popular gift category in this year's survey (62 percent), followed by clothing (59 percent) as the second most popular gift category. Nationally, spending on gift certificates is up significantly, six percentage points since 2000. Fritz noted increased gift certificate sales could boost sales in the post-holiday period because certificate holders frequently spend more than their voucher's value.

Hot Gifts

Several other items emerged as "hot gifts" for Twin Cities shoppers, ranking closely behind gift certificates and clothing. CDs, DVDs, and videotapes (combined) are among the more popular items, which 58 percent of local survey respondents plan on purchasing. 50 percent of Minnesotans plan to purchase books. Sporting goods and toys and games (combined), rounded out the top five with 34 percent of local shoppers planning on making a purchase of this type.

"On last year's survey, 56 percent of respondents in Minneapolis/St. Paul indicated intentions to spend more time with family. The trend continues this year, with the items emerging as this year's hot gifts are clearly in line with the local focus on home and home entertainment," said Fritz. "The majority of these gifts are items that can be enjoyed in and around the house, and while socializing with friends and family."

Service Reigns Supreme

Good customer service also seems to be playing a significant role in determining where holiday shoppers spend their money. Using a scale of 1 to 10, 69 percent of respondents rated their Internet shopping experiences as an 8 or better, compared to 43 percent who rated in-store shopping as an 8 or better.

Internet retailers, both pure-play and online arms of brick-and-mortar stores, emerged this year as the third most popular channel, outpacing traditional department stores by 13 percentage points. Close to one half (42 percent) of the survey respondents said they will shop online.

"Web retailers have really improved their customer service in the last couple of years," said Fritz. "They continue to gain credibility as they have fine-tuned web navigation, credit card security, shipping methods and return policies and have increased brand recognition."

Intentions vs. Actions

"The big question for retailers is, as always, will consumers' intentions translate into action?" said Fritz. "Despite waning consumer confidence, economic fundamentals indicate that Americans are in a good position to spend this holiday season.

"Thanks to mortgage refinancing, tax reductions and modest employment gains, consumers are sitting on a sizeable amount of cash," he said. At the same time, he cautioned that the possibility of conflicts in the Middle East or rising oil prices could derail consumer spending.