Holiday retail sales tough to gauge
Locally, shopping season could be alright
Kelly Thurman/The Argus Leader
Shoppers are expected to spend more this holiday season, but the growth might not be as strong as recent years partly because of political uncertainties.
The National Retail Federation estimates holiday sales this November and December will be up 4.1 percent over last year to $585 billion. That’s compared to a 5.6 percent increase retailers experienced last year, and it would be the smallest bump since 2009, when sales grew just 0.3 percent.
A number of organizations offer projections for retail’s busiest time of year. The International Council of Shopping Centers is estimating smaller growth at 3 percent, while Moody’s Analytics expects a 3.7 percent bump.
The projections are an important indicator for retailers that depend on the last two months of the year for as much as 40 percent of their annual sales.
The holiday shopping season is one gauge of not only the shopping habits but also the mindset of the average American during what has become a slow and uneven economic recovery. Right now, people are feeling better about rising home prices and a rebounding stock market, but job growth remains weak and prices for everything from food to gas are higher.
“In all the years, this is the most challenging year doing a forecast,” said Matthew Shay, president and CEO of the National Retail Federation, based in Washington, D.C. “There are so many uncertainties.”
Among the uncertainties that probably will affect this year’s shopping season is worry that the U.S. economy will fall into another recession next year. That’s when tax increases and deep government spending cuts will take effect unless Congress reaches a budget deal.
Retailers and economists are hoping history doesn’t repeat itself. The last time there was such a budget battle, in August 2011, it ended with the country losing its top credit rating, nervous investors fleeing the stock market and shoppers taking a break from buying.
Retail consultant Jeff Green expects a 3.5 percent to 5 percent increase this year, but unlike last year, when sales started early, the season probably won’t pick up until after the presidential election in November.
“Once the election is behind us, I think there will be more focus on actually the Christmas season,” he said. “If you think about it, a lot of the retailers can’t even get their advertisements on the air.”
But coming off the back-to-school season, which typically predicts how the holiday season will proceed, retailers are feeling optimistic. Sales increased 6 percent in August and 3.9 percent in September, according to the International Council of Shopping Centers.
Sioux Falls optimism
Sioux Falls-based retailer Lewis Drug expects sales increases to be in the middle single digits this year, tracking with sales through the first three quarters of the year, said Mark Griffin, president and CEO.
Once again, consumers are looking for deals, Griffin said, but a significant change is that back-to-school shopping provided some insight into impulse buying.
“They’re always going to buy what they need, but they’re not necessarily going to buy what they want,” Griffin said of the back-to-school season. “The impulse buying was better for back-to-school, and we expect the impulse buying to be better through the end of the year.”
In the Midwest, the dry weather could hurt sales. Twenty-seven percent of the state is in the exceptional drought category, and corn and soybean production is expected to be poor in areas.
At The Empire Mall, general manager Dennis Gilliam said sales have been steady the past few years, and they expect that to continue this year, though they don’t release projections.
But he also said the drought is a wild card this year.
“The crop season this year was interesting, to say the least,” Gilliam said. “We may see an increase or a decrease based on what happened with the agri-economy this year. We don’t know because we don’t know how that is actually coming out.”
Green said the area’s strong employment rate might help stifle the effects of the drought.
“I don’t think it’s going to be a major factor. If you had, say, 10 percent unemployment and then a drought on top of it, I think that would send up some red flags,” he said.
Sheryl Nelson, owner of Kidtopia toy store south of The Empire Mall, also expects growth this holiday season based on sales so far this year, which are up about 14 percent. The business has been open for five years, and Nelson expects she still sees growth yearly as more people discover it.
“I think people are starting to realize about how shopping local helps everyone in our community, too,” she said.
Predicting holiday spending never is easy. During last year’s holiday period, strong overall sales failed to tell the whole story: Retailers’ profits were eroded because they had to do a lot of discounting to get shoppers to spend, particularly during the final weeks before Christmas.
Once again, consumers are expected to be sale-conscious this year.
“I think people are shopping a little more, they’re out and about more,” Griffin said. “They’re very value driven. They want a deal. They want prices that are affordable, and they want convenience.”
People are conditioned to expect sales this time of year, Griffin said.
Black Friday plans
A large part of that is Black Friday, the day after Thanksgiving and one of the busiest shopping days of the year.
The Empire Mall once again will open at midnight, and Gilliam said he expects a majority of stores will participate after last year’s success.
“Last year, we had thousands of people waiting outside the door, waiting for them to open, and we really expect no less this year,” Gilliam said.
They’re planning entertainment and a variety of special events throughout the day.
While last year mall officials were focused on making the early opening a success, Gilliam said this year they will work to make sure the sales and customers keep coming through the morning and afternoon and into the evening.
“We were very successful last year in getting all those people to show up at midnight, and we hope to be able to maintain that kind of traffic throughout the day now,” Gilliam said. “We’d love to see a rush every hour.”
Americans are more optimistic than they have been in a long time. Consumers’ confidence rose to a seven-month high in September even as the unemployment rate has been stuck at around 8 percent, according to the Conference Board. Gallup Poll, which tracks consumer confidence daily, also registered a pickup in confidence last month to the highest level since May.
Adding to that, Americans have seen their portfolios grow as The Standard & Poor’s 500 stock index has surged more than 15 percent this year. And national home prices were up in July 1.2 percent compared to the same month last year, according to the Standard & Poor’s/Case Shiller index released last week.
Still, some economists question whether the higher level of confidence among Americans is sustainable. Confidence has been bouncing around since the recession and the current level still is well below what’s considered healthy. Moreover, the spike in confidence has yet to translate into a surge in spending.
“You have to be confident to spend, but because you’re confident doesn’t necessarily mean you’ll spend,” said Dennis Jacobe, chief economist at Gallup Poll.