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Holiday Sales Will Surprise to the Upside

October 24, 2011

It is that time of year again. Retail forecasters release their holiday guestimates of sales for the important holiday shopping season. The “season” includes the months of November and December. This is a critical time of year for most retailers, as holiday sales can account for as much as 40 percent of a retailer’s annual revenue. 
 
Perhaps the most respected and widely followed forecast comes from the National Retail Federation. Back in early October, they anticipated an “average” holiday shopping season, with sales estimated to increase by 2.8 percent versus last year. This is above the 10-year average of 2.6 percent that they have observed, and significantly below last year’s 5.2 percent increase (see Chart 1). Based upon the strong September retail sales results (up 1.1 percent versus August; up 7.9 percent versus last September), and July’s upward revision (+0.3 percent versus the 0.0 percent preliminary estimate), look for the NRF, and many others, to revise their forecasts upward.
 
Chart 1.
 
The International Council of Shopping Centers expects holiday sales will be “subdued.” They look for chain store sales to increase by 3.5 percent, and shopping center-generated retail sales to increase by 2.2 percent during this holiday season, compared to last (see Chart 2).
 
Chart 2.
 
Source: International Council of Shopping Centers
 
Rather mild projections for the season have also been made by a number of other reputable and highly respected firms. According to Accenture’s Holiday Shopping Survey, also released in October, 88 percent of shoppers intend to spend the same or less than last year. Citigroup analysts have a forecast for holiday sales gains of 2 percent to 3 percent. NPD Group expects holiday sales to rise just 1.5 percent to 2 percent, with the majority of consumers indicating that they plan to spend the same amount of money on holiday gifts (64 percent, a 5 percent increase from 61 percent in 2010), according to their 2011 Holiday Retail Outlook. Retailers should expect small gains in 2011 holiday sales, according to a Deloitte forecast, of 2.5 percent to 3.0 percent. Results from Big Research indicate that 38.5 percent of adults 18 and up plan to spend less and 32.3 percent plan to spend the same for the holiday season compared to last year. Finally, according to The Nielsen Company’s Holiday Shopping Sales Survey, only 5.0 percent of U.S. households plan to spend more on the upcoming holidays this year than last year.
 
The news in the popular press is no less dour:
Joyless Holiday Retail Forecast
Wall Street Journal - September 21, 2011
 
Moderately Healthy Holiday Sales Forecast
Pittsburgh Post Gazette - September 22, 2011
 
Holiday Season May Be A Bah-Humbug for Retailers
The Associated Press - September 21, 2011
 
Forecasts Point To Modest Holiday Growth
Business Week - September 22, 2011

It should be no surprise to our readers that we think that the experts have it wrong – again. We believe that holiday 2011 will, like September’s retail sales, surprise to the upside. Based on many factors that we have considered, we look for holiday retail sales in the range of 3.6 percent to 4.2 percent. We list some of our reasons here:
  • A better than expected back-to-school shopping season, which is a reasonable predictor of holiday sales.
  • Gas prices will continue to fall, especially in light of recent events in Libya.
  • Initial unemployment claims, comparing October 15, 2011, to the prior year, are down by 12.8 percent; continuing claims for unemployment, comparing October 8, 2011, to the prior year are down by 15.8 percent.
  • The Philadelphia Federal Reserve Bank's Index of the Regional Factory Sector improved for the second straight month.
  • The Leading Economic Indicators Index rose 0.2 percent during September, following a 0.3 percent increase in August.
  • The Consumer Price Index is up by 3.9 percent comparing September 2011 to September 2010. Some of this will show up as price increases paid by consumers.
  • In its October 19, 2011, Beige Book, the Federal Reserve found that “overall economic activity continued to expand in September, although many Districts described the pace of growth as "modest" or "slight."
  • A recent survey of economists by Bloomberg News projects that gross domestic product for the third quarter will increase at a 2.5 percent annual rate, following last quarter’s 1.3 percent increase.
  • The Dow Jones Industrial Average has been rebounding smartly this month (see Chart 3).
Chart 3.
Source: Barrons
 
We are seeing many signs of a slight improvement in the economy. In light of all the negative press, even a small improvement will be welcome news for consumers, who will respond by spending a respectable amount this holiday shopping season.

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