There is no question that retail is having a banner year. Through Oct. 2018, retail and food services, excluding motor vehicles, parts and gas stations, are up 5% over last year.
All signs are the year will end way ahead of last. The National Retail Federation predicts Nov. and Dec. retail sales will increase between 4.2-4.8% to close out the year with a bang.
In a recent conference call with Oliver Chen, Cowen’s managing director consumer-retailing/department store, specialty softlines and luxury, National Retail Federation’s Mark Mathews, the association’s vice president of research development and industry analysis, predicted that retail sales ultimately will fall toward the high-end of its earlier prediction. But he also revealed a fact that gave me pause.
“While total retail spending set records, NRF’s survey results which focus on holiday sales and gift buying indicated sales declined -7% vs. last year,” Chen wrote in a memo summarizing his meeting with Mathews. Qualifying that surprising finding, Mathews explained that gift spending represents “only a subset of total retail spending,” which is true.
NRF’s 4.2-4.8% growth predictions look at retail overall, not just gift-related purchases. But presumably buying holiday gifts is the primary reason why people shop throughout the last two months of the year.
If people aren’t spending more money on gifts then what are they spending it on and what does it mean for retailers going into the New Year?
To allay retailer worries about the 7% drop in gift spending, Mathews said NRF surveys indicate that as of early December, nearly 90% of shoppers have not finished their holiday shopping yet and about one-fourth haven’t even started their shopping.
Cowen’s Chen believes the decline in gift spending is not cause for alarm, suspecting “shoppers could be pushing their purchases further back, especially as the holiday promotion season has expanded all the way through Christmas.” He adds that there is one extra day between Thanksgiving and Christmas this year. Plus a happy accident of the calendar puts Christmas one day back in the week.
This is all well and good, but numerous other surveys find that rather than delaying holiday gift buying, shoppers are starting earlier and finishing sooner.
Earlier holiday shopping means fewer gift purchases in December
Pre-holiday surveys about consumers’ holiday gift shopping intentions all aligned with one view: shoppers were starting holiday shopping earlier in the season.
This was the expectation of NRF back in October, which found 22% of those surveyed had begun or planned to begin shopping in October and 19% were shopping in September or earlier. Shoppers reported they wanted to get an early jump on the season to avoid the stress of last-minute shopping (49%) and to avoid crowds (48%).
In another study JLL’s 2018 Retail Research Holiday Survey found 34% of shoppers planned to start gift shopping before Thanksgiving and 29% would start Thanksgiving weekend. Further, fewer consumers surveyed planned to start within two weeks of Christmas this year than last.
Deloitte’s 2018 holiday survey also finds a majority of shoppers will start holiday shopping earlier this year. In a survey among over 4,000 shoppers, some 60% said they would start shopping before Thanksgiving, with 27% planning to begin on or after Thanksgiving in November. Only 11% will begin in December.
In another question in the Deloitte survey about when holiday shoppers will allocate the largest share of their spending, the peak period was found to be in late November, from Nov. 16-30. This would be the time period that NRF’s Mathews was talking about with the 7% decline in gift spending.
We all know that what people say they will do in surveys isn’t always what they actually do, but across the board shoppers express an intention of putting their gift shopping behind them early in order to make the run up to Christmas a less stressful, happier time to enjoy the festivities.
Five more prime days for holiday shopping left
Out of the ten busiest days for holiday shopping this year, we’ve still got five prime days left, according to ShopperTrak, though the busiest day, Black Friday Nov. 23, has passed. The Saturday before Christmas, called Super Saturday Dec. 22, will be the second biggest day, followed by Sunday Dec. 23 and Friday Dec. 21.
On a positive note for gift shopping through the rest of December, ShopperTrak reports that this will be the last year until 2022 when there will be four Saturdays in December leading up to Christmas and retailers will get another Saturday in the month after the holiday.
“All five Saturdays will be some of the busiest traffic days this year,” according to ShopperTrak.
Are retailer promotions releasing pent up demand for self purchases?
To balance NRF’s -7% decline in gift spending through early December with other surveys that suggest more early gift shopping in general, we can conclude that shoppers this year are shopping and spending more on themselves than they are buying gifts for others. NRF’s Mathews suggests this in reporting self-gifting was up 13% this year over last among the young 18-24 year olds.
Deep promotional discounts are drawing shoppers, with 65% of shoppers polled by NRF saying sales and promotions influenced them. Further some 90% of shoppers expect sales and promotions to continue up through Christmas and be similar or even better as December progresses, Mathews told Cowen’s Chen.
This suggests that a great deal of the already strong retail spending seen this season is directed toward self purchasing. With more Americans employed and incomes finally starting to rise after the extended recession recovery period, retailers don’t really care if customers are buying for themselves or buying gifts, as long as they are buying something, at least through the end of this year.
But then comes next year. With consumer demand satiated and budgets stretched to the breaking point at the close of this year, retailers will face big challenges in the new year when they have to pay the price for all these retail promotions.
Already Cowen sees gross margins under pressure from retailers’ need to stimulate sales through promotions and low prices, all the while they are facing rising labor and transportation costs, potential tariff impacts and growing digital and infrastructure costs.
The Grinch may not steal retailers’ Merry Christmas this year, but he may have nasty plans for a not-so-happy New Year.