Holiday Sales Poised for Solid but Unexciting Growth.

Dan North
Dan North

The holiday sales period is here, and for many retailers, it’s make-or-break time for the year. Currently, the background looks reasonably supportive for a modestly good holiday season:

  • Consumer confidence is near an 18 year high.
  • Hourly wage growth reached 3.1% in October, the fastest in nine years. And since labor is scarce, employers are offering more hours per week to employees, driving weekly wages up 3.4% y/y, the fastest since before the recession, the fastest in 11 years.
  • Aggregate disposable (after tax) personal income (DPI) is growing at 4.9% y/y compared to 4.7% last year at this time.
  • Aggregate personal consumption expenditures (PCE) are growing 5.0% y/y compared to 4.2% y/y.
  • Retail sales, which account for about 40% of PCE, are growing at 4.6% y/y, just above the long term average of 4.4%.
  • Prices for regular gas have fallen almost 8% in just five weeks and are now at the lowest they’ve been in seven months, providing an extra boost to disposable income just in time for the holidays.  

Given this background, most sales forecasts are around 4%-5% over last year, which is similar in range to growth in income, consumption, and retail sales.  It’s solid, but it’s not terribly exciting. Here is a summary of the outlook from various forecasters.

The National Retail Federation’s forecast is perhaps the most often-quoted one, and although its estimate of 4.3%-4.8% increase in sales is less than last year’s 5.3% gain, it’s still more than the five year average of 3.9%. Again, solid, but unexciting.

Of course e-commerce is growing much more rapidly than overall retailing, averaging an 11.1% growth rate annually since 2010, compared to only 4.6% for overall retailing.  Not surprisingly, holiday forecasts for e-commerce are much higher as well. It’s still worth noting that e-commerce accounts for only about 10% of all retail sales.

While the forecasts above are essentially for the entire holiday period, the first actual results from the critical Black Friday are in, and they are mixed. According to Adobe Systems, internet sales surged over the Wednesday through Friday period by 26.4% from last year, to $12.3B. Adobe also reported that in-store pickups from online orders, a newer channel, rose a steep 73% over last year.

However, given the rise of online shopping, it is not a surprise then that according to Shopper Trak, foot traffic in brick and mortar stores on Thursday and Friday fell by 1% from last year. That was the fifth straight decline but was less than last year’s. A separate report from RetailNext estimated the decline at 5%-9%.

Finally, almost all retailers are facing margin pressure as wages for their workers rise, tariffs are starting to flow through to the cost of goods, and pricing pressures remain relentless with online, and now mobile, shopping.

For the consumer, the macroeconomic outlook is reasonably good, with high consumer confidence, growing income, and solid forecasts, all of which will lend support to 2019. But for retailers, the combination of margin pressure and relentless, ever-changing competition, makes the holiday forecasts less exciting than they could be.