Retailers Should Believe in Christmas Miracles
Although consumers remain deeply gun shy about spending, there are plenty of reasons to believe that this Christmas holiday season will not be as bad for retailers as last year. In fact, a strong case may be made that the season will turn out better for retailers than many forecasts are expecting.
Yes retailers, there is a Santa Claus.
This does not mean a return of a “shop ‘til you drop” mentality by any means. Instead, there's a sense that while the consumer spending gauge has been recalibrated, there could be growth off of this new base.
"Last year's dismal holiday retail results are being left behind as consumers are slightly more optimistic about the economy and are much more savvy about how they attack their holiday gift and meal list," said Thom Blischok, president of market researcher Information Resources Inc.'s consulting and innovation unit.
Global Hunter Securities consumer strategist Richard Hastings predicts retail sales from November through January will rise 2.5 percent from last year.
According to Hastings, even with the current high levels of unemployment, a good number of consumers are feeling more secure than they did last holiday season, and they are are experiencing increased levels of buying power as prices fall on everything from food to consumer electronics.
Of course, there are those who aren’t as optimistic. The retail industry’s trade group, the National Retail Federation, and Britt Beemer, founder of America’s Research Group are among them.
The NRF is projecting a 1 percent decline in retail sales to $437.6 billion. To put this forecast in perspective, it means sales will remain significantly below the ten-year average of 3.39 percent holiday-season growth, but it is certainly not as dramatic as last year’s decline, when sales dropped 3.4 percent. (The NRF’s forecast does not extend into January, as Hastings’ does.)
Meanwhile, Beemer’s forecast calls for a 2.9 percent decline. Based on the numerous surveys his firm has conducted, the American consumer is still hunkering down.
Market's Rally May Spur Spending
The strength of holiday sales may come down to which slice of consumers matters the most.
Miller Tabek Chief Economist Strategist Dan Greenhouse suspects higher-income individuals, who account for about 50 percent of the spending, are an important part of the picture; this group is feeling better now that the stock market — and their portfolios — have rebounded.
“I think, in a simple way, a 60-something percent rally in the stock market does a whole lot to ensure that the higher income individual is going to go out and spend…I remain encouraged as long as the stock market is moving higher,” Greenhouse said.
But UBS analyst Neil Currie says the swing factor is not the high-income consumers, but those in the middle who have been stretching to buy those Coach bags and cashmere scarves all these years. And there, Currie sees a lot of pain.
Currie explains middle-income consumers were the main beneficiaries of the housing market’s boom and the extraction of home equity, which was used to fuel their shopping. Even after a year of retrenchment, Currie doubts these consumers are ready to buy again.
“They are concerned about funding their retirement, continuing to own their own house, and saving to pay college fees for their kids,” Currie says.
The surveys UBS and America’s Research have conducted suggest consumers are winnowing their holiday gift list down to only the nearest and dearest. They are shopping smart and ditching the impulse buys.
This is what retailers are saying as well. JC Penney Chief Executive Myron Ullman says the majority of consumers are feeling guilty when they purchase items they don’t need.
However, there does come a point when women, who were the first to pull back on spending, can no longer rely on their closet, and have to go out to the stores and begin to buy those necessities again.
That spending, as modest as it may be, could make all the difference. Since retailers have kept inventories lean, and since promotions — though frequent and aggressive — have largely been planned well in advance, there’s a chance even small sales gains could make for a profitable fourth quarter.
Strong Clothing Sales Expected
Craig Johnson, president of retail consulting and research firm Customer Growth Partners, is expecting sales in the November-December time period to rise 2.4 percent from last year. Within that estimate there will be pockets of strength and areas of weakness, Johnson said.
One of the bright spots, he suspects, will be clothing and accessories. He’s forecasting that sales in the sector will be up 8.8 percent, a major turnaround from 2008’s unprecedented 13-percent decline, but still below 2006 and 2007 sales levels.
But it will be another dismal year for those who sell home furnishings, Johnson says.
As for the cautious remarks that have been coming from retailers in recent days, Johnson says, “Everyone’s kind of sandbagging it. Nobody ever gets fired for underestimating sales.”
According to Hastings, the reservations retailers have been expressing also may be based on recent sales trends, which may be a bit weaker than the same-period a year ago. However, the number of shoppers at the stores is higher than it was in prior months.
Citigroup retail analyst Kimberly Greenberger expects mall traffic during the Holiday season will be up as much as 2 percent, which would be a slight improvement over the flat traffic last year.
Once those shoppers get to the stores, there’s no doubt they will be tempted by eye-popping promotions. A BDO Seidman survey of retail executives found that 96 percent planned on increasing promotions and discounts. They are also stepping up the number of special events to drive shoppers to the store.
This has already been seen in the aggressive discounting Wal-Mart Storeshas sparked in books, toys, smartphones and other categories even ahead of Black Friday, the traditional start of the holiday season.
Consumers are watching those details, and researching the gifts they want to buy. Traffic to online coupon sites has been rising. Andrea Woroch, a spokeswoman for SurfMyAds.com, says traffic to the company’s coupon Websites, CouponWinner.com and PromotionalCodes.com, is up 20 percent since the beginning of the month.
That research, and the expectation that there will be better sales and discounts as the season progresses, may mean Black Friday is less significant.
“Flat sales predictions are a recurring theme this holiday season,” says Ted Vaughan, a partner in BDO Seidman’s retail and consumer product practice. “Retailers plan to focus on promotions for the entire holiday season so there will be less emphasis on Black Friday and Cyber Monday than in years past.”