Holiday 2015: Decent Economy, Weak Christmas Forecasts
Solid growth is forecast for the upcoming holiday season, but don’t count on seasonal cheer coming from retail economists and analysts.
Anxiety over a host of matters, including warm weather cutting demand for outerwear and sweaters, has put a damper on forecasts, but retailers are still looking for ways to make the best of the holiday season.
The National Retail Federation, the Washington, D.C.–headquartered trade group, issued a forecast that said sales in November and December (not counting business of autos, gas and restaurant sales) will increase 3.7 percent to $630.5 billion. Last year, holiday sales grew 4.1 percent.
Business consultants Deloitte forecast that sales will increase between 3.5 percent and 4 percent. When receipts are tallied up, consumers will spend $434 billion during he holiday season. Last year, Deloitte measured sales growth at 5.2 percent.
Liz Pierce, an analyst at Brean Capital, said that the season would not be robust. “Expectations have come down,” she said. “At this point, I think it will be a tough holiday. But I don’t think it will be the worst ever.”
A winter holiday season hobbled by low expectations is starting to play out while the U.S. economy is relatively strong, said Kimberly Ritter-Martinez, an economist with the Los Angeles County Economic Development Corporation. Retail sales were up in October, according to the U.S. Census Bureau. It was an increase of 0.1 percent over the previous month. Unemployment is relatively low, 5 percent in October, according to the U.S. Bureau of Labor Statistics. While consumer confidence has dipped recently, sentiment that the economy is headed on the right track is still relatively strong, according to The Conference Board, a research group.
However, the sales performance for major retailers seems to be on a seesaw. Retail stocks declined when Macy’s Inc. and Nordstrom Inc. reported third-quarter earnings reports below Wall Street expectations. Retail stocks recovered a few days later when Wal-Mart Stores Inc. reported its third-quarter earnings. The retail giant beat analysts’ estimates.
The disconnect between a relatively strong economy and anxiety over the holiday season may be rooted in predictions of a soft performance for apparel. However, there also is a mixed forecast for apparel sales.
Deloitte predicted that clothing will be the top gift given during the holiday season, with 48 percent of shoppers planning to give a gift of clothing. (That figure is up from 45 percent last year.) Apparel retailers sometimes make up to 22 percent of their annual revenue from winter holiday sales.
However, Jeff Van Sinderen, a veteran retail analyst at B. Riley & Co., also forecast that many apparel retailers would have a tough season ahead of them.
There are a long slate of reasons why apparel is forecast to have a tough winter holiday season, Van Sinderen said. There are no “must-have” fashion items this Christmas. There are no major trends attracting people to boutiques and stores, he said.
The major problem has been the weather. Temperatures soared in 2015, and the National Oceanic and Atmospheric Administration, the U.S. agency that tracks worldwide temperature, announced in October that 2015 was going to be ranked as the hottest year on record.
Sales of outerwear and sweaters, a focus of fall and winter business, has been postponed again and again this year. There’s a lot of outerwear inventory out there, Van Sinderen said, and retailers will be in a race against time to sell it. After Dec. 25, it’s likely that it will all go on sale.
“It will be extraordinarily promotional, even more promotional than last year,” Van Sinderen said, adding that heavy discounts will cut deeply into retailers’ margins and their profits for the crucial season.
“There’s not a lot of interest from consumers unless it is 40 percent off,” he said. Only the most spectacular items will stand a chance of being sold at full price.
Deloitte also found that off-pricers and discounters will have the busiest winter holiday seasons; 45 percent of shoppers surveyed by Deloitte said they planned to shop at a discount department store during the holidays while 30 percent said they would shop at a full-price department store. Furthermore, 22 percent said they would shop at outlet stores, where discounts typically range from 20 percent to 70 percent off full price. According to the survey, 17 percent said they would shop at specialty clothing stores.
All analysts interviewed for this story noted that since the Great Recession of 2008, many American consumers have preferred to shop at discounters and off-pricers.
Less than half of holiday shoppers, 47 percent, said they would shop at e-commerce sites for the holidays, according to the Deloitte survey. In the 2014 survey, 45 percent of consumers said they shopped online for the holiday.
Perhaps a bright spot for the U.S. economy is that analysts do not believe that it will be affected by shockwaves of the recent terror attacks in Paris. “It’s a consumer market unto itself,” Ritter-Martinez said of the American consumer market. Van Sinderen said that consumers will go about their business as long as there are no terror attacks stateside. Sadness and trauma over the Paris attacks may compel some to shop. “It will be a way to cheer themselves up—retail therapy,” he said.
As the calendar moves closer to Black Friday, the day after Thanksgiving and the traditional start of the holiday season, independent retailers have begun preparing for the holidays. To get people thinking about holiday shopping while it still feels like summer, Alan Hall, owner of the Muse and Eden boutiques in San Diego and Laguna Beach, Calif., has sought winter silhouettes with an edge.
“We’ve been cautious on ordering traditional fall and winter apparel,” he said. ”Because of the weather, we’ve been ordering lightweight items.”