Retailers are praying that holiday sales will finally turn around after two hard years. Last year was terrible, with the downfall of well-known retail chains such as Circuit City and Linens 'n Things. This year hasn't been much better.

But the near-term outlook doesn't appear positive to Robert Buchanan, assistant professor of finance at St. Louis University. He sees glum sales through the first half of next year. And Buchanan doesn't expect consumers to return to their free-spending ways in the long run.

Unlike many academics, Buchanan hasn't been confined to an ivory tower. He spent 23 years in equity research, scrutinizing the financial statements and strategies of retailers. Before turning to teaching, he was vice president and Retailing Industry Research Group leader at A.G Edwards.

Yet, he didn't start in equity research. He had been a journalist, working for wire service United Press International.

"There is a lot of commonality between a good reporter and a good analyst," Buchanan says.


How do you project this year's holiday season to be, compared to 2008?

I think it is going to be a slow Christmas. If you look at the industry, it is certainly not depressed, but I think the industry is in slow spirits. What we've been seeing is same-store sales growth in the -1, -2 percent area throughout the year. I think that trend will continue through the holiday, and certainly into the first half of next year.

There are two reasons, number one is the debt — personal, corporate and government debt. Debt has become an acute problem for individuals.

Second thing has to do with the stock market. The total returns for the stock market during the 26 years ending with 2007, they ran right around 13 percent per year (which made consumers richer). ... My suspicion is that kind of super market will not apply during the next 26 years.

What would be your advice for retailers this season?

A lot of them are acting very intelligently, starting with Walmart and individual retailers like Nordstrom, Kohl's, Target, Costco. What they are doing is smart, they have cut way back on their inventory levels and their expense levels. Those retailers in particular are positioned to make decent a return even if the sales stay slow.

A number of retail companies filed for bankruptcy in the past year. How will this affect retailers in the long run?

I think the days of heady growth for American retailers are over. Moving forward, the game is going to be about the market share. ... A given retailer has to punch another retailer in the nose to take their market share away in order to survive. It has become and will remain a ruthless Darwinian struggle.

Do you think the recession has marked the death of customers?

My hunch is that (for) the high end of American retailing, like Neiman Marcus, Saks Fifth Avenue and parts of Nordstrom, the customer mindset ... has permanently changed.

I think the days of freewheeling spending are over, particularly at the high end. It never made a whole lot of sense for someone to spend $2,000 on a business bag, for example, and yet, people did anyway ... I think now it absolutely makes no sense. Frugality is the word.

If I am wrong about the (stock) market, and the stock market goes on a sustained (strong growth) for the next 26 years, then people might go back on spending $4,500 on a handbag.

What do you think will be the state of retail business over the next 20 years?

I think strong and superior value propositions will carry the day. To me, the best retailing concept in the world ... is Costco's.

Most typical retailers are working anywhere between a 30 percent to 60 percent mark up (on) the cost of their merchandise; Costco is working anywhere between a 10 to 15 percent markup. They don't carry everything, they only have about 4,000 items at one point in time versus 150,000 items at a Walmart super center. But what they have ... is very sharply priced.

And given how tough times have become for millions of Americans, I think that is a big deal. So, I think Costco will fare better than (other) large retailers over the next 20 years, provided they stay on their game.