Analysis: Holiday sales should increase, but profits will stay flat

Holiday retail sales should increase 2% to 4% over last year but retailers should not be expecting a similar profit boost.



That’s the view of Purdue University retail management expert Richard Feinberg who expects retailers will lose pricing power due to online competition.



National holiday shopping revenue is expected to be close to $850 billion. But growing online sales will keep pressure on storefronts as internet sales are expected to have another a double-digit increase (10% to 15%) over last year Feinberg said approximately half of all consumers will use the internet, and specifically mobile devices, before deciding where to buy. About the same number of consumers will look for better prices online before buying in person.



Feinberg stressed the need for retailers to have a dynamic web presence.



"For the first time since Purdue has been tracking consumer sentiment and holiday shopping, more than 50% of shoppers prefer internet holiday shopping," he said. "Local retailers must communicate something special or a good deal when consumers find their business on the web. Retailers need a 'good deal' to attract consumers to their stores."



Another retail lure, Feinberg said, is free shipping. Purdue research shows 90% of consumers will actually spend more for a product if shipping is free.



Closer to home, retailers need to give consumers a reason to visit since the internet means the world is their mall. If retailers don't have a smooth and attractive internet presence they may be pushing consumers to outlets like Amazon.



"Driving consumers to the internet because a store is out of stock, doesn't have the right size, color, or merchandise, costs store-based retailers billions of dollars during the season," Feinberg said.



Feinberg on other holiday shopping trends:



* Facebook and Pinterest are significant in influencing consumers on what and where they purchase.



* Retailers need to pay attention to online review sites. In-store experience must be pleasant, leading to positive reviews.



* Retail loyalty clubs have become increasingly important in communication and capturing consumers.



* Black Friday is no longer king. The Saturday or Sunday just before Christmas have been the biggest shopping days the past five years.



* For the past year gasoline prices have been a boost to retail spending. Gas prices have increased in recent weeks and could be an impediment to retail spending and could make the difference in overall holiday spending.