Home improvement, luxury goods top holiday lists.

This year coming home for the holidays will be more than a state of mind.

Home improvement chains and home decor shops are expected to top the list of retailers reaping a major slice of holiday sales in the 2004 selling season.

Sales at home improvement chains have picked up considerable momentum coming into the fourth quarter selling season, and thanks in part to an added emphasis on merchandising for the holidays, these retailers are expected to see sales increases at or near the top of the anticipated range.

"We think the home improvement stores are going to have a terrific holiday season," said Aubie Goldenberg, a partner in the retail group at Ernst & Young. "These stores have done a terrific job marketing the seasonality of Christmas, whether it's trees, lights or power tools.'"

Many consumers are still flush with cash from refinancing and home equity loans, and the home improvement chains have broadened their offerings to capture these holiday budgets.

No longer just lawn mowers and hoses, selections at these chains cater not only to the more indulgent whims of consumers, they also address a penchant for luxury likely to be reflected across the retail landscape this year.

"You have this strong flip flop this time around," said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. "It's the high-end retailers that are doing well."

Pundits are projecting sales increases ranging from 4 percent to 7 percent this holiday season. But the higher increases are expected to come in the high-end and home store sectors, not the mass merchants.

Sales at the Glendale Galleria are up 8 percent to 10 percent year to date, according to JoAnne Brosi, general manager of the mall. The center, which includes stores like Nordstrom, fine jewelry retailer Bailey Banks & Biddle and apparel retailer Guess?, is expecting a 3 percent to 4 percent sales increase over the holiday season, the bulk of that in personal care, electronics, children's and upper-end women's clothing and accessories.

"That's a phenomenal increase because we had a great fourth quarter last year," Brosi said.

In recent years, chains like Wal-Mart Stores Inc. and Target Corp, have reaped the lion's share of holiday sales, buoyed by tax rebates and a generally conservative consumer attitude that brought even more affluent shoppers to these stores.

Pressure in the middle

But as the 2004 holiday season approaches, there are far more pressures on the middle- and lower-income consumers that make up the bulk of discount store shoppers.

Rising gas and food prices, along with health care and other costs is dampening the outlook for this segment of the market even as optimism soars among more affluent customers.

"People that are a little less affluent are much more susceptible to changes in things like the price of gas," said Goldenberg. "'If you look at the value retailers over the last few months, they've been much more in the low, single digits and the lower ends of the ranges. They are clearly being impacted by gasoline prices."

In October for instance, same store sales at Nordstrom Inc. increased 11.5 percent while sales at Wal-Mart rose just 2.8 percent. Wal-Mart, typically a stellar performer, last week posted third quarter sales of $68.5 billion, falling short of analysts forecasts of $69.2 billion. The Home Depot meanwhile, exceeded analysts forecasts with its third quarter earnings performance while reporting same store sales increased 4.8 percent for the period. The retailer said it expected sales to increase in the 10 percent to 12 percent range for the full year.

While all types of retailers make certain to stock their shelves with items in a wide variety of prices to capture holiday gift-giving sales, Home Depot is also promoting a sampling of luxury items this season.

Among its offerings: a $2,999 Image Aspen Spa and a Fitness Armoire that comes equipped with a tread mill and weight bench inside for $2,299. For kids, the retailer will be featuring a John Deere battery-powered Gator 4x2 for $279.

"We've definitely expanded upon some categories," said Kathryn Gallagher, a spokeswoman for Home Depot, which has about 15 stores in the greater San Fernando Valley.

"We're offering more Disney-themed items, and we're ramping upon small appliances, TVs and VCR/DVD combos and some design and decor related items. We've always had these items, but you will see an increase this year over last."

Holiday budgets

According to a Deloitte survey, consumers in Southern California are expected to spend $1,519 each this holiday season. The survey respondents said that in addition to gift-giving, they planned to spend their holiday budgets on socializing, entertaining at home and buying home and holiday furnishings.

Temporary shops which have just opened in Westfield Shoppingtown Topanga also reflect the interest in home-related luxury goods. This year, two of the mall's newest additions are inTune, a cart that sells products like Apple's iPod and a Dell outpost that carries plasma televisions, among other goods.

"In the past couple of months most of our retailers have had really healthy sales," said Beth Silhasek, marketing director for Westfield Shoppingtowns Topanga and Promenade, which include Nordstrom locations as well as pricey specialty retailers like Coach. "There's more money out there, so everyone's a lot more generous with their gift giving."

Like many other malls, the Westfield centers in the Valley have seen especially strong sales in gift cards, and the mall has added three new outposts for gift card sales this holiday season.

"We're up double digits in gift card sales," said Silhasek. "And that's money people are planning to spend in the future, so that's really showing that people are spending more money and will continue to do so."