Analysis: Lackluster Sales Set Stage for Humbug Holiday
By Craig Johnson, Customer Growth Partners
With a third straight year of dismal retail spending, American consumers will generate only a lackluster 3.4% year-over-year increase in holiday sales, well below the 5% pace in 2010 and 2011, according to Customer Growth Partners’ 14th Annual Holiday Forecast.
Retail sales for the November-December Holiday period will reach $590 million—a new record, but the anemic 3.4% only marginally exceeds 2013’s 2.9% pace, and reflects declining median incomes for all but the top 10% of households. (CGP’s Holiday forecast excludes autos/auto parts, gasoline/oil, and restaurants).
Contrary to much conventional wisdom the single best predictor of retail sales is neither gasoline prices, the unemployment rate or consumer confidence—but growth in disposable income. And the fact is that real median incomes have flatlined—if not declined—for many years now.”
The key drivers behind the retail weakness are lagging income growth and, relatedly, the declining share of the population with full-time jobs. Only 48% of the working age population now holds a full-time job, the lowest in decades, and down from 54% as recently as 2006.
In addition to depressing overall retail spending, the shift to a “part-time economy” has caused spending to rotate from discretionary goods to non-discretionary goods. Consumers with full-time jobs spend against both needs and wants—but those with part-time jobs spend only against needs.
In addition, this year’s sharp price increase for food—which accounts for some 15% of spending for moderate and lower income households—far outweighs this fall’s savings on gasoline costs, which comprises barely 4% of household budgets. Lastly, recurring monthly obligations, from cellphone and cable bills to record-high student loans—are commanding a growing portion of disposable income, curbing potential gift-giving.
Key findings of CGP’s 14th Annual Holiday Forecast include:
• E-Commerce/direct-to-consumer sales continue to decelerate, after two decades of robust double-digit growth, to just under 7% for holiday 2014.
• Among merchandise categories, health and personal care stores will outpace other sectors with strong 6.3% year-over-year growth
• Apparel sales will lag the already sluggish overall growth pace, with year-over-year growth of only 2.4%, signaling another dismal holiday for clothing retailers. Boots and outerwear will be among the few bright spots in the category.
• Department stores will struggle again this year, both with the weak apparel sales and softening demand for the once white-hot handbag category, and will see essentially zero growth year over year at holiday.
• However, consumer electronics will rebound strongly, with growth exceeding 4%--the best showing in years, on the back of new excitement in the category from the iPhone 6 (and the Plus version, still in short supply), a new generation of lower cost “4K” HDTVs, and a host of new smart watches.
• To date, the Ebola threat has not impeded mall traffic—which has been sluggish for over two years—but if the U.S. outbreak should expand beyond the current four cases, it is possible that traffic may be affected, including driving more sales online.
Holiday shoppers in 2014 remain very cautious in their spending, and will be relentless in seeking out value. But retailers dependent on healthy discretionary spending will find this another challenging holiday, particularly those who placed holiday orders last May, when sales were still healthy.
Holiday 2014 will be a marginal improvement from last year, but until real income growth resumes, Santa will be hard-pressed to fill the Christmas stockings for either consumers or retailers.
Craig R. Johnson is president of Customer Growth Partners, New Canaan, Conn., a consulting and research firm serving the retail industry. Founded in 2001, CGP conducts both proprietary and public forecasts of annual, back to school and holiday retail sales. It maintains a 16-member field team that conducts primary research and detailed store checks nationwide, in over 60 major shopping venues.