Nov. 23, 2005--As Black Friday approaches, marking the unofficial start of the holiday shopping season, retailers are getting ready for what many consider make-or-break time -- especially true for smaller retailers.

After initial jitters, the outlook got a little rosier this week, as the National Retail Foundation revamped its initial holiday sales forecast to reflect a more optimistic economic landscape. Strong October retail sales and falling gasoline prices led the NRF to boost its initial prediction, calling for an increase of 6 percent over last year's sales, to a total of $439.5 billion. The original forecast, issued at the end of September, called for a moderate gain of 5 percent over 2004 numbers.

Although stronger than initial estimates, the numbers still show a lag in consumer spending. In 2004, by comparison, holiday sales climbed 6.7% from 2003, to a total of $414.7 billion. The NRF's initial forecast was tempered over concerns about how the job market, consumer confidence, and most notably, the price of oil and gas would affect retailers' bottom lines.

"The price of gas is the wild card this season," says Ted Hurlbut, principal of Hurlbut & Associates, a Medway, Mass-based retail consultancy. "Retailers have a lot riding on this season and, in general, the mood is cautious. Gas can affect whether customers have cash in their wallet to spend and whether they are willing to drive out and about in the first place." While earlier pain at the pump may have eaten away at some consumers' holiday savings, gas prices have now fallen for six consecutive weeks -- a trend welcomed by retailers.

Hurlbut says that fourth-quarter sales can account for 35% to 40% of a retailer's total business. For a toy store such as Fat Brain Toys, that number can jump to 60 percent. "We do just about as much business in December as we do during the rest of the year," says Mark Carson, co-founder of the online and catalog educational-toy retailer based in Elkhorn, Neb. "Because of the seasonality of our business, we really need to nail the holidays." In order to do so, Fat Brain hires about 25 seasonal employees to assist the seven permanent staff members, and adds extra phone lines for taking orders.

Thus far, retailers are reporting sales to be at or close to normal. "For this time of year, I'd say we are right on target in terms of sales," says Diane Ross, president of Silly Goose, a retail gift and toy store based in Essex, Mass. Mark Carson of Fat Brain Toys even reports sales above forecasts, although he credits that to increased sales efforts rather than any macroeconomic trends.

Like an increasing number of small retailers, Silly Goose also has a website, which could help augment sales if some consumers remain wary about filling up the tank and driving to the mall.

Although large retailers benefit from economies of scale, Hurlbut said smaller, independent retailers have some advantages when it comes to judging and reacting to how well the season is shaping up. "They are actually in the stores, they can get a feel for how things are going by speaking with customers directly," he said. "Major retailers don't really have that ability, so they are often much quicker with the markdown pencil."

Indeed, both Silly Goose and Fat Brain Toys shun discounting in favor of more creative ways of reaching customers. Silly Goose runs in-store promotions, such as a Parent's Night, where wine and hors d'ouevres are served, to get customers into the store. Mark Carson of Fat Brain Toys sends out personal e-mails to his customer base, reminding them of past purchases and suggesting future ones.

Despite continued speculation by industry watchers, about how large retailers are planning to reveal huge discounts early in the season (Wal-Mart generated huge buzz a few weeks ago, with rumor that it would sell a $400 Hewlett Packard laptop over the holidays), Hurlbut says that small retailers who have built a niche in the community typically do well.