The season before the season: holiday sales forecasting
It has begun. Retail sales updates and the first holiday forecasts are out with some predictable observations about market conditions.
The National Retail Federation, Kantar Retail and eMarketer have updated full year sales forecasts and shared very early views of what to expect during the holidays.
The National Retail Federation (NRF) has reduced slightly its full year retail sales growth forecast to a range of 3.2% to 3.7% from a forecast announced in early February which projected sales would increase 3.7% to 4.2%. Here’s how NRF Chief Economist Jack Kleinhenz explained the organization’s lowered expectation: “Meaningful revisions to retail sales numbers by the Census Bureau and similar revisions to personal income and consumption by the Bureau of Economic Analysis have both affected our forecast and have required us to adjust our 2017 sales projection.”
Weaker than expected spending in the first quarter along with decelerating inflation contributed to the revision, according to Kleinhenz, but NRF anticipates stronger sales heading into the fall and holiday seasons. If prior years are any indication, the trade group’s annual holiday forecast is likely to come in early October, but several other organizations are already out with estimates. For example, Kantar Retail said it expects fourth quarter retail sales to increase 3.7% and eMarketer said holiday sales would increase 3.1%.
Kantar’s forecast represents an improvement relative to weak growth of only 2.9% in the fourth quarter of 2016, but the company said growth will be underwhelming relative to average growth prior to the Great Recession of 5%.
Kantar said its 3.7% estimates is comprised of e-commerce growth of 16% and brick-and-mortar growth of 1.5% in the holiday quarter. Both are an improvement from 14% and 0.5% in the fourth quarter of 2016, respectively, according to Kantar.
“Lackluster wage growth will once again hamper holiday sales growth. Shoppers that have benefited from the surging housing and stock markets will be the bright spots for retailers this holiday.” said Doug Hermanson, Principal Economist with Kantar Retail. “The prospects of government spending cuts and lower taxes in 2018 should also be noted given they could further divide the spending plans of holiday shoppers.”
While eMarketer’s 3.1% holiday forecast is less optimistic than Kantar’s, it sees e-commerce growth dramatically outpacing physical stores. The firm expects e-commerce sales to increase 16.6% this year to reach $107 billion. The growth will largely be driven by increases in mobile commerce and the intensifying online battle between large retailers and digital marketplaces, according to eMarketer. This year, e-commerce will represent 11.5% of total holiday retail sales, up from 10.2% last year, the firm forecast.