Lower Gas Prices Won't Ensure Happy Holiday

October 30, 2014

Retailers are in for a "humbling holiday" with a 3.4% overall increase in sales and a deceleration in e-commerce growth, according to a new forecast from retail industry consulting and research firm Customer Growth Partners.

In the 14th annual holiday forecast, the 3.4% increase in sales is well below projections of others, most notably the National Retail Federation, which has holiday sales advancing 4.1%.  E-commerce/direct-to-consumer sales will continue to decelerate, after two decades of robust double-digit growth, to just under 7% for holiday 2014.  Craig Johnson, president, said his pessimism is due to a difference of opinion over the biggest drivers of sales.

"Contrary to much conventional wisdom the single best predictor of retail sales is neither gasoline prices, the unemployment rate or consumer confidence, but growth in disposable income," Johnson said.  "And the fact is that real median incomes have flatlined, if not declined, for many years now."

If the 3.4% growth rate proves accurate, Johnson said it will be the third straight year of dismal retail spending following a 5% pace of growth in 2010 and 2011.  Overall retail sales for the November through December holiday period will reach $590 billion.  While that is a new record, the anemic 3.4% growth rate only marginally exceeds 2013's 2.9% pace, and reflects declining median incomes for all but the top 10% of households, according to Johnson.

In addition to the impact of lagging income growth on spending, Johnson believes the declining share of the population with full-time jobs will also have an impact.  Only 48% of the working age population now holds a full-time job, the lowest in decades, and down from 54% as recently as 2006, according to Johnson.

"The shift to a 'part-time economy' has caused spending to rotate from discretionary goods to non-discretionary goods.  Consumers with full-time jobs spend against both needs and wants, but those with part-time jobs spend only against needs."

Another headwind this year relates to a sharp price increase for food which accounts for some 15% of spending for moderate and lower income households.  Food price increases far outweigh this fall's savings on gasoline costs, which comprises barely 4% of household budgets, according to Johnson.

Lastly, recurring monthly obligations, from cellphone and cable bills to record-high student loans are commanding a growing portion of disposable income, curbing potential gift giving.

Among merchandise categories, health and personal care stores will outpace other sectors with strong 6.3% growth while apparel sales will lag the already sluggish overall growth pace, with growth of only 2.4%.  Department stores will struggle again this year, both with the weak apparel sales and softening demand for the once white-hot handbag category, and will see essentially zero growth while consumer electronics will rebound strongly, with growth exceeding 4%, according to Johnson's forecast.

"Holiday shoppers in 2014 remain very cautious in their spending, and will be relentless in seeking out value," Johnson said.  "But retailers dependent on healthy discretionary spending will find this another challenging holiday, particularly those who placed holiday orders last May, when sales were still healthy.  Holiday 2014 will be a marginal improvement from last year, but until real income growth resumes, Santa will be hard-pressed to fill the Christmas stockings for either consumers or retailers."

Source: Retailing Today