The 2017 holiday season began, with little fanfare, on Wednesday, Nov. 1. That may be news to anyone who pays more attention to Black Friday weekend – which these days spans Thanksgiving Day into Cyber Monday. As anywhere from 25% to 40% of a retailer’s sales comes during this critical time period, it’s no wonder there is so much attention paid to how the holiday season shakes out. Even grocery retailers see a lift from holiday spending – which just goes to show how much the whole sector depends on it.
So how does this year’s season look? First, a roundup of predictions.
The National Retail Federation predicts that holiday retail sales will be up 3.6-4% over last year. They measure November and December and exclude gasoline, automobiles and restaurants. They peg the forecasted total somewhere between $678 billion-682 billion.
Deloitte also forecasts holiday spending, but they include restaurants in their total prediction of $1.04 trillion-1.05 trillion, which would be a 4-4.5% increase year over year. Adobe Digital Insights also predicts a growth rate of 3.8% year over year.
All of this says there is a lot of optimism out there for this year’s holiday season. But that doesn’t mean that things will be easier for store – Adobe Digital Insights forecasts that online sales will increase 13.8% year over year to $107.4 billion. Deloitte predicts 18-21% growth, to $111 billion-114 billion.
Growth of 13-21% in one channel vs. overall growth of 3.4-4.5% means that stores will lose, but for the retailers prepared for that, the season will theoretically still be a good one.
A survey by JLL, a professional services firm that specializes in real estate and investment management, predicts average planned holiday spending of $743.40 per person. NRF predicts $967.13 per person, up 3.4% over what they said they would plan to spend at this point last year. NRF breaks it down differently – by including non-gift items that consumers decide to buy for themselves, which they expect to average $140.99 per person.
Three big trends seem to be driving this holiday season already:
- The shopping season has already kicked off. The JLL survey found that 30% of consumers plan to do holiday shopping between Halloween and Thanksgiving. And retailers are paying attention. A RetailMeNot survey found that 79% of surveyed retailers plan to begin their marketing efforts earlier this year than last year.
- Online continues to win, at the expense of stores. NRF found in its consumer survey that 59% of consumers plan to shop online, edging out stores for the first time ever. The JLL survey found that only 47% of shoppers plan on shopping in stores as their primary holiday shopping stop, and another 26% plan to order online for pickup in store for holiday shopping this year. Adobe found that 31% of shoppers plan to spend more online this year over last year.
- Clothing and accessories made a comeback, but electronics is still behind and toys are still strong. Both the NRF and RetailMeNot found that clothing tops consumers’ shopping lists. The NRF reported clothing & accessory purchase plans are the highest levels they’ve seen in 12 years. RetailMeNot found that electronics and toys are not far behind. And Adobe’s analysis into consumer search terms and sentiment found that the most anticipated gifts are Hasbro NERF guns, Nintendo Switch, Apple Air Pods, and the Sony PlayStation VR.
Positive & Negative Trends That Could Impact Spend
There are several trends that could impact these forecasts. Some could have positive effects, some negative. But honestly, at the moment it looks like most of the impact could be positive.
The U.S. Congress has a big to-do item that could impact holiday spending: tax reform
Depending on whose analysis you believe, tax reform will either stick it to the middle class or save it. That’s assuming Congress can actually pass anything anyway. Whatever your politics, if Congress does pass tax reform before their own deadline November 13, 2017, then no matter what form it takes consumers might breathe easier – and that might translate into even more confidence for the holiday season.
Consumer confidence is already very high
According to the Consumer Confidence Index, consumer confidence in September increased to its highest level in almost 17 years, up 5.3 points to 125.9. There are lots of things that could disrupt that confidence, but if it’s coupled with a perception that there will be tax relief waiting for consumers in April, this could very much translate into looser purse strings for the holidays.
Strong personal income growth is expected
Personal income growth has been an area that economists have been watching closely. Deloitte in its analysis reported that personal income grew 2% over the 2016 holiday season, and they expect it to grow 3.8-4.2% over the 2017 holiday season. Unemployment has been low enough long enough that some wage pressure is generally expected – but it still hasn’t shown up yet. The last reported figure is from August 2017, when personal income grew 0.4% month over month. A collection of forecasts doesn’t seem to have the same confidence that Deloitte does.
Consumers are not expected to plow those wage increases into savings
From TradingEconomics.com, reporting on U.S. Bureau of Economic Analysis: the personal savings rate was 3.1% in September, but while that has been relatively consistent since June, it is down from a peak this year of 5.5% in May, and down significantly from 11% reported at the end of 2012. With savings rates so low, if consumers do get a raise over the holiday season, it could go one of two ways: people decide to plow the extra money into savings to make up for past shortfalls, or people decide to play on at the current rate. In 2012, the savings rate spiked in December.
The labor market stays strong
The NRF has found that retailers are planning fewer overall temporary holiday hires. But that doesn’t seem to have much impact on the overall unemployment rate, which is forecasted to stay low throughout the holiday season, even dipping again in December. Even with reduced hiring expectations from retailers, there seem to be a lot of Help Wanted signs out there, which is part of why economists expect wages to rise.
Retailers may have bought too much inventory
The only other variable here is retailers themselves. NRF reports a record number of imports this summer, which means record levels of inventory on shelves for holiday. If there is anything that spooks consumers, with that much inventory out there, retailers will undoubtedly succumb to panic-reaction sales and markdowns. This means that whether consumers buy or not, retailers themselves could adversely impact themselves through bad buying decisions, which ultimately impact the bottom line, no matter what happens to the top line.
Retailers are planning to spend more on holiday marketing
Speaking of the bottom line, 85% of retailers surveyed by RetailMeNot are planning on spending more on holiday marketing this year over last year. There is a lot of fear and uncertainty out there about what’s going to happen with online – and whether more spending will shift to mobile – and what all of that means for stores. As noted above, both retailers and consumers seem to expect to kick the holiday season off earlier. This means either that retailers will feel more confident coming into the critical 32 days between Thanksgiving and Christmas, or have a panic reaction if consumers’ early spending drags.
No one can predict the future. But they can make guesses. The guesses are in – now it’s time to watch what happens!
Nikki Baird is a managing partner at Retail Systems Research, a market intelligence firm focused on trends in retail.