U.S. holiday retail sales are expected to rise by only 1.5 percent this year, according to a new forecast from Archstone Consulting. This is a significant improvement over the sharp 3.9-percent decline of 2008 but represents only a modest improvement over the 0.4-percent increase of 2009. Archstone's analysts find that despite some economic growth, stagnant family income and limited spending power have driven many Americans to feel that the recession is not over. However opportunities do exist in diverse sectors, including value retailers and retailers selling high-end luxury goods, as both of these sectors have already seen moderate to strong sales growth this year.
"In recent non-recessionary years, it hasn't been unusual to see growth rates of 3 to 5 percent," says Dave Sievers, Strategy and Operations Practice leader for Archstone Consulting. "But the weak growth we're forecasting for retail sales this holiday season is all the economy can muster at present. This recession has hit hard on the pocketbooks of the American family, and people are not ready to start spending again just yet."
Sievers said that there are likely to be some pockets of strength emerging in the retail sector, as shoppers focus on discounts and practical purchases. "Retailers like Costco and Kohl's have successfully proven that value can bring in shoppers and grow sales without diminishing their retail brand equity strength. Both are seeing year-to-date store sales up about 3 percent, which is impressive in today's environment. On the other end of the spectrum, luxury goods sales began rebounding early in the year, and are nearing pre-recession levels. This segment should continue to experience growth during the holidays."
Archstone's research found that several factors are most likely to affect retail sales this holiday season. One key positive factor was back-to-school retail sales, which are the second-largest "seasonal" sales period after holiday retail sales. Back-to-school sales figures showed a strong rebound this year, and are projected to be up 10.5 percent over 2009 and up 2.0 percent over 2008. Total spending on school-age children (grades K-12) is expected to reach $21.4bn this year, up 22.5 percent from 2009 and 6.2 percent from 2008. Sales of luxury goods are rebounding to pre-crisis levels, with categories such as apparel, accessories, shoes, leather goods, and hard luxury -- including jewelry and watches -- leading the surge. Historically low inflation rates will also increase the relative value of retail sales, although this does not represent real growth.
On the negative side, the housing market remains extremely challenged, with declining housing values and foreclosure rates that continue to climb. Archstone also found that tight credit, continued high unemployment, and low consumer confidence were other significantly negative factors affecting retail sales.
Archstone's forecast relies on its proprietary, predictive model, which examines a comprehensive list of factors, including: monthly disposable income, unemployment rate, consumer price index, price index for oil, wages, housing market, and retail inventory levels. Additional research on consumer credit, savings rates, consumer confidence, shopping trends, and impact of government stimulus programs was also factored into this year's report.
The retail sales forecasted exclude auto, gas, and restaurant sales.
The research described here is available free, with registration at this download link.
