Defying stubborn department store and mall traffic weakness — and after an abysmal start to the retail year — consumers are loosening their purse strings, just in time for the critical holiday season.
Customer Growth Partner’s 17th Annual Holiday Forecast calls for above-consensus growth of 4.3% year over year, to a record $663 billion, accelerating from 2016’s tepid 3.5. (The forecast covers all census bureau retail sectors except restaurants, autos and gasoline/oil, for the combined Nov-Dec statistical period.)
After a slow first quarter, up only 2.3% year-over-year, retail spending is gaining speed with each passing month, now doubling its growth pace from early this year. Holiday may not reach the peak 6% growth of the mid-2000s bubble years, but 4.3% is a healthy pace, well above the 3.7% consensus — and based on the latest data, could even approach 5%. This year’s holiday may well mark a turning point not just for retail, but for overall consumer spending — which drives 70% of the economy.
Shrugging off persistent department store woes, holiday will be led by home-related retailers — notably the home improvement sector — and by online retail, both up almost 9%. The robust overall growth, however, has not been uniform, with declining sales at smaller sectors such as sporting goods and toys, and at many mall-centric stores — to the extent that traditional malls now account for barely 15% of total retail sales, down from 35% a generation ago.
Total department store sales will decline sharply, as the overcapacitied sector belatedly downsizes by hundreds of stores from last year. However, for off-mall stores such as Costco and Walmart to “way-off-mall” online sites such as Wayfair, this holiday will mark the best growth in four years — and perhaps in over a decade. The reason is that, across the board, shoppers are flocking to destinations that offer value and time-saving convenience — and for the most part that is off-mall.
Based on CGP’s forecast, holiday 2017 will be paced by:
• Home improvement: up 8.9% (+4.8% last year)
• Online: up 8.6% (+12.0%)• Superstores/clubs: up 5.7% (flat)• Home furnishings: up 3.9% (+2.8%)
• Food & beverage: up 3.5% (+3.6%)
Retail sectors anticipated to decline from holiday 2016 include:
• Department stores: down 3.9% (-5.2% last year)
• Sporting goods, books, toys: down 3.8% (-3.6%)
• Consumer electronics/appliances: down 1.5% (-4.5%)
Sectors: Department stores’ 3.9% drop actually represents a sequential improvement from last year, as the mall traffic woes ease, and as the stores ramp up their online sales. Apparel stores will struggle with only 1.8% growth, although that represents an acceleration from dreadful 2017 year-to-date growth of only 0.5%.
The consumer electronics/appliance a sector is inflecting positively, but is still seeing price compression and weak TV demand. The sector’s challenges are compounded by stubborn supply delays in the two hottest products for holiday — Nintendo’s Switch and Apple’s iPhone X, with initial deliveries expected later this week.
Smaller categories forecast to enjoy a robust holiday include the rebounding watch segment — paced by Apple’s Series 3 Watch, and by other smartwatch offerings — and by luxury, including “hard” luxury, i.e. jewelry, and by improving performance at some high-end department stores.
Online growth is still driving the entire retail market: The increase in online sales accounts for almost 40% of the total holiday sales rise. Amazon continues to comprise an outsized share of the online sales increase, but newer players such as Wayfair are seeing rapid growth.
The rosier holiday view reflects deferred demand from early this year, and the accelerating employment and disposable income outlook. Based on 17 years of forecasting, disposable income growth is the key catalyst driving retail, and incomes are rising. Holiday shoppers are buying close-to-need and focus relentlessly on value, but they have clearly begun to spend again. And with a growing ‘wealth effect’ due to stock market gains, luxury stores will enjoy a happy holiday — after two years of coal in their silk stockings.
Craig Johnson is president of Customer Growth Partners, a consulting and research firm serving the retail industry. The company has conducted proprietary and public forecasts of annual, back-to-school and holiday retail sales since it was founded in 2001. CGP’s 18-member field team conducts primary research weekly in over 90 major shopping venues nationwide, with an additional researcher based in London tracking U.S. retailers with operations in Europe.