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The Consumer is Back Big Time


By Craig Johnson, [email protected]

Shrugging off sour sentiment surveys and Washington woes, value-focused but financially healthier American consumers will propel 2011 holiday sales to a record $554 billion, according to retail consultancy Customer Growth Partners, the best year-over-year growth since 2004.

American households — at least the 91% with jobs — have deleveraged dramatically since 2007, while disposable income continues to rise, generating almost $50 billion/month in incremental free cash flow, even with gasoline price hikes. And after three years of scrimping and saving, Americans are ready to spend — strategically and smartly, but for the first time in years, very few things will stand between an American consumer and her shopping destination. This will be a very happy holiday for most families--and almost all retailers.

Issuing its tenth annual holiday forecast, CGP predicts total retail sales growth of 6.5% for the November-December period over last year, the most rapid growth since 6.9% in 2004 — and over twice consensus forecasts called for lackluster growth of only 2.5%-3%.

Five key factors are behind the strong retail rebound this holiday:

  • Almost 4% year-over-year (YOY) growth in personal disposable income, the biggest driver of retail sales;

  • Normalizing savings rates, down from a 2009 peak of 8.2% to about 4.5%;

  • A decline in the Household Debt Service Ratio from 14% in 2007 to 11%, alone freeing up some $30 million in household free cash flow;

  • Still pent-up consumer demand, after three years of putting off discretionary purchases; and

  • A return of excitement to retail for the first time in years—from new fashion to new stores.

Other key highlights of the annual forecast include:

  • Apparel will lead holiday sales growth, with a YOY increase of 7.6%, its best showing in over a decade, led by the best burst of fashion excitement and newness in years.

  • E-commerce will continue to be the fastest growing channel, at 12% YOY — a slightly slower pace than last year.

  • Consumer electronics, the great engine of holiday sales growth during the 2000’s, will see barely 1% growth — despite burgeoning tablet, eReader and smartphone unit sales — held back by rapidly declining TV and other consumer electronic prices.

  • Retail will show “W-shaped” growth this holiday, with strong sales throughout the price spectrum — but with some weakness among a few lagging retailers.

  • Luxury sales will rise 12% this year, with strength in apparel, accessories such as handbags, and jewelry.

  • Value retailers will also thrive, growing 8% YOY, led by the dollar stores and off-price apparel chains.

  • Department stores—from Nordstrom and Saks to Macy’s—will enjoy their best holiday in years.

But despite the rebound we’re seeing across the retail landscape, the two fastest growing retailers are not traditional merchants at all — but Amazon and Apple, both growing about 40% a year, and both now Top 10 retailers as we enter 2012.

Amazingly enough in light of the terrible unemployment situation and the mess in Washington, the consumer is back, big time. Ironically enough, the retail sector post-Recession is really quite healthy — perhaps because it is the only major industry that is neither regulated nor bailed out by Washington.

(CGP’s forecast was based on the company’s sectoral econometric models encompassing Government Personal Income, Employment, Savings Rate and Retail Sales data; retailer financial data; and CGP’s proprietary store and consumer research. It includes all retail categories except autos, gasoline and restaurants.)

Craig Johnson is president of Customer Growth Partners, a consulting and research firm serving the retail and consumer industries. CGP has conducted both proprietary and public forecasts of holiday, back to school, full-year retail forecasts for many years. Johnson has conducted demand forecasting and consumer research studies for over three decades. He can be reached at [email protected].

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