This year’s holiday retail sales forecasts are out. Most are conservative, looking for a 3-4 percent sales increase. Compare this to last year’s increase of 5.6 percent. PRI is a bit more optimistic than most. We look for a 4.4-4.8 percent increase. The difference between the consensus forecast, on the one hand, and that of PRI, on the other, is a matter of perspective. We believe that most forecasts are overly conservative due to a focus on macro-economic factors. On the other hand, PRI has taken more of a bottom-up approach, as summarized here.
Issues such as the financial cliff and a general lack of business certainty; the EU debt crisis; a looming presidential election; and a slow-growth economy, to name a few, are very much top-of-mind for economists. In consideration of these macro-economic factors, most holiday sales forecasts are rather conservative. While we are equally concerned about the macro-economic outlook, we think that consumers will spend a bit more when one considers how well retailers are performing this year and their outlook for the holidays, as well as various factors that have a more direct connection with consumers.
The financial performance of many retailers is strong this year. For example, large retailers’ sales for the second quarter 2012 were up 8.1 percent versus the second quarter of 2011. And after-tax profits were the best they have been for the 2008-2012 period.
Source: Census Bureau
Source: Census Bureau
Costco just announced that same store sales rose 5.0 percent and net profits rose 27 percent for the quarter ended September 2012. Walmart’s most recent quarterly same-store sales rose by 2.2 percent, the fourth straight quarter of sales growth. This follows nine straight quarters of sales declines. And its stock is up some 26 percent this year. Going into the end-of-year shopping season, Walmart stated that it is looking for a “strong holiday.”
We believe that the consumers’ outlook is also improving. Unemployment is down (7.8 percent in September 2012 versus 9.0 percent in September 2011); household net worth is up 2.5 percent for the second quarter 2012 versus the same 2011 period; consumer sentiment has improved (78.3 for September 2012 versus 59.5 for September 2011); the housing market is improving; this year’s shopping season is longer (32 days versus 30 days last year); and this winter will be colder than last, at least in the Northeast, among other things. Also noteworthy is where consumers are spending their money. Spending on big-ticket durables likes cars (+10.6 percent) and home furnishing (+6.2 percent) indicates that consumer confidence is returning.
We look for the 2012 holiday shopping season to be better than most. If you would like to read PRI’s entire “Retail Economic Outlook: Confident but Not Optimistic; Holidays Will Surprise to the Upside,” see the third quarter edition of PRI’s Journal of Retail Analytics, which will be released the week of October 22, 2012.
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