Santa Claus is coming to town… and with more verve than last year, according to a retail industry association.
The job market has recovered—and real income risen—enough to give consumers the confidence to go shop a little more in November and December this year than they did last year.
The National Retail Federation, a U.S. Industry group whose members include such major chains as Wal-Mart Stores (WMT) and J.C. Penney (JCP), expects holiday season sales to jump 4.1% to $616.9 billion, in its closely watched forecast. That is better than last year’s 3.1% increase and the average 2.9% holiday season growth rate in the last decade. (The tally excludes cars, gas, and restaurant sales.)
It’s been a bumpy year for retailers so far, with consumer confidence careening all over the place and shoppers showing extra caution. Many retailers in August complained of the blues that shoppers couldn’t shake, with chains like Macy’s (M) lowering their sales projections. The holiday season typically generates 30% of sales and 40% of profit for the retail sector.
But now, many clouds are starting to part: the U.S. Unemployment fell below 6% for the first time since 2008. And this year there is no fiscal cliff debate stirring anxiety in shoppers. Indeed, consumer confidence hit its highest level in 14 months in September.
Many retailers have ramped up seasonal hiring, reflecting that optimism, with Walmart and Kohl’s (KSS) raising hiring the most. The sales growth will also get an assist from e-commerce: Shop.org expects online holiday sales to grow between 8% and 11% over last holiday season.
Still, retailers should be cautious. Last year, retailer after retailer ended up posting mediocre holiday sales, or discounting heavily to get shoppers to spend, decimating profits as a result. And there is little respite in sight.
“Consumers continue to be price sensitive,” NRF Chief Economist Chief Economist Jack Kleinhenz told Coins2Day. “They are not willing to take on additional debt they can’t afford.”
That means shoppers won’t engage in the same game of chicken with retailers that they have in seasons past. Indeed, PricewaterhouseCoopers expects about 8% of holiday spending will happen after Christmas itself, compared to 5% usually. That is a simple fact of life now for retailers: shoppers won’t open their wallets without a good deal to prompt them.
“Until we see a broad-based rise in real income, we’ll be in the same bloodbath as we were the last few holiday seasons,” said AlixPartners managing director Joel Bines. “I tell my retail clients to be prepared for a very promotional environment this holiday season—it will be about market share more than profit.”
