Archstone Consulting Projects 3-5% Retail Sales Increase for 2005 Holiday Season; Luxury Goods and Catalog/Online Sales Channels Will Flourish.

STAMFORD, Conn. -- As the 2005 holiday season approaches, Archstone Consulting, a firm focused on delivering independent, strategic advice and operational results, forecasts that overall retail sales will increase 3-5% (inflation adjusted) over the 2004 holiday season (defined as November and December). Higher gas prices will provide a boost to online and catalog sales which will gain at least 6-8% over last year. Gift cards, a category undervalued last year, will also be a strong vehicle for holiday spending in 2005.

High-end apparel and luxury goods will see the biggest increases. "The continued double-digit gains in home prices and heavy cash-out refinance activity in 2005 has provided a cash infusion to consumers," stated Michael Unger, a Director in Archstone Consulting's Consumer Product Goods and Retail practice. "That cash combined with the expected Wall Street bonuses, gives luxury goods retailers a promising outlook. Furthermore, the devastation from two major hurricanes will have a stimulating effect as government, private, and insurance monies get applied towards replacing lost and damaged personal items."

Other factors that will contribute to the overall sales increase include a low unemployment rate as well as the continued willingness of consumers to assume more debt.

Conversely, the electronics sector will struggle this Holiday season. "With the exception of growth from a few exciting products like high-end flat screen televisions, the must-have iPod products, including the iPod nano and iPod video, fierce competition between retailers may ultimately erode margins," commented Andrew Buss, a Director with Archstone Consulting. Likewise, discount department stores will have a tougher time as their core customer base will be impacted the most from higher fuel costs. While gas prices will shift sales from brick-and-mortar stores to their on-line channel, it will not be enough for these discounters to realize big gains.

Positive Economic Factors Affecting 2005 Holiday Spending

-- 1. Continued growth of online and catalog retail: Customized products, broader selections, and the convenience of point-and-click shopping continue to drive the success of this channel. Forrester Research, Inc. expects online sales of general merchandise to exceed $100 billion this year and predicts a 14% CAGR over the next 5 years. By 2010, online sales will account for 13% of total US Retail sales.(1)

--2. Wall Street bonus payouts: Brokers and bankers anticipating large bonuses will spend freely, particularly on big-ticket and luxury items.

--3. Refinance activity: The double-digit gains in home prices combined with the substantial cash-out refinance activity in 2005 has provided excess cash for consumers.

--4. Consumer reliance on debt: According to Business Week, total household debt in the US was more than 100% of disposable annual income last year. In July, the US Savings Rate hit 0.6%, the lowest savings rate on record. Continued reliance on credit cards will boost sales this upcoming holiday season. We are, however, concerned that in the long-run, consumers cannot sustain current debt to income rates. The charge-now-pay-later mentality will eventually take a toll on the economy.

--5. Stimulus from Hurricane relief: The Gulf Coast area will experience a significant infusion of cash this coming holiday season as families, business and governments reestablish themselves in this devastated region.

--6. Low unemployment rate: The current national unemployment rate is 5.1% (graphic 2). Although it has recently risen from a low of 4.9%, the general trend for employment over the last year has been positive. (Last year's holiday season unemployment rate was 5.4%).

While the firm's models predict positive holiday sales increases for this year, their outlook has been tempered by several negative economic factors. These are:

--1. Consumer Confidence: Consumer confidence is at its lowest level in almost 2 years (graphic 3). In a recent Conference Board(2) announcement, only 25.2% of consumers called business conditions "good." Those claiming conditions were bad increased to 17.5%. Consumers anticipating business conditions to worsen increased to 19.8% from 10.0% - while those expecting improvements declined to 15.3% from 18.7%. Another indicator of consumer confidence found that the proportion of consumers anticipating their incomes to decrease in the months ahead rose to 10.8% from 8.9% last month.

-- 2. Gulf Coast Hurricane Employment: The final employment impact of the Gulf Coast hurricanes is unknown. The Congressional Budget Office stated that the storms eliminated approximately 480,000 jobs. Uncertainty as to the final impact of these storms has tempered our forecast despite the stimulus created by disaster and recovery efforts.

-- 3. Inflation: The consumer price index (CPI) from June - August increased 4.2% at an annualized compounded rate. Energy prices were up a whopping 38% during the pre-Katrina period. Since then, regular-grade gasoline reached a record nationwide average of $3.057 a gallon on Sept 2nd. In this economic environment, there will be less disposable income in the pockets of many consumers - particularly those with limited and moderate means.

-- 4. Retail consolidation and expansion: Many smaller retailers are feeling the pressure of the giant supermarket chain's desire for expansion into non-traditional categories such as electrical appliances, and health and beauty. The power of these retailers in this channel will force the smaller players to adjust or exit the business. The continuing retail margin pressure will inhibit strong sales growth.

For 2005, the firm continued to rely on their predictive model using a comprehensive list of factors. These include: Unemployment Rate, Consumer Price Index, New Housing Starts, New Homes Sold, Leisure and Hospitality Employment, Department Store Inventory Price Index, Producer Price Index for industrial commodities, Price Index for gasoline, Productivity (Non-Farm) and the Index of Consumer Sentiment. "Our statistical models use 50 years of data. To add more variety to our models, we continue to test 'atypical,' yet contemporary variables that could impact holiday retail results such as: ruling party in an election, election results (incumbent win or loss), and results during conflict (defined as U.S. led wars)," added Michael Unger.

This forecast has been consolidated by Andrew Buss and Mike Unger, Directors of Archstone Consulting, with significant analytic contributions by Brian Murphy and Tom Isenberg.

The information provided above is provided by Archstone Consulting solely for informational purposes. In addition, the statements above speak as of the date of this release. Factors could arise after this date that could affect the outcomes and forecasts set forth above. Archstone Consulting shall have no liability to any party for any action taken or not taken, or results obtained, in reliance on this information.

About Archstone Consulting

Archstone Consulting is a rapidly growing independent strategy and operations management consultancy. Archstone Consulting specializes in corporate transformations in the consumer packaged goods and retail, life sciences, manufacturing, and services sectors. Combining deep vertical expertise with proven functional skills, Archstone Consulting is able to design and implement operational improvements to help fund growth through CFO advisory services, strategic initiatives, and operational improvement services. Headquartered in Stamford, Connecticut, the company has offices in New York, Chicago, San Francisco and Amsterdam. For additional information, please visit the company's web site at www.archstoneconsulting.com.

(1)Forrester Research: 9/19/05 - US eCommerce: 2005 to 2010

(2)Conference Board September 27, 2005