NRF Says Good Holiday Season Ahead
While we expect the National Retail federation, an 18,000 member trade group and lobbying organization that represents department, specialty, discount, catalog, internet, drug, and grocery stores and chain restaurants, might not be completely neutral with its forecasts for holiday retail sales, they do have a vast network of touchpoints to develop their forecasts, having been off by an average of only 1% from actual results over the last five years (higher than actual in every year except 2020). This year’s prediction is for a range between 8.5% and 10.5% y/y or between $843.4b and $859b[1] (we use single point in Fig. 1). If correct, this would be the biggest yearly gain after last year’s 8.2% y/y increase, considerably above the 5 year average of 4.4% and the 3.6% long-term average going back to 2003.
NRF President and CEO Matthew Shay stated “There is considerable momentum heading into the holiday season. Consumers are in a very favorable position going into the last few months of the year as income is rising and household balance sheets have never been stronger. Retailers are making significant investments in their supply chains and spending heavily to ensure they have products on their shelves to meet this time of exceptional consumer demand.” While such a statement from a retail trade association president is to be expected, the NRF Chief Economist was a bit less sanguine noting that “Pandemic-related supply chain disruptions have caused shortages of merchandise and most of this year’s inflationary pressure. With the prospect of consumers seeking to shop early, inventories may be pulled down sooner and shortages may develop in later weeks of the shopping season. However if retailers can keep merchandise on the shelves and merchandise arrives before Christmas, it could be a stellar season.”
Other estimates that we have looked at call for a slightly less robust view, with most around the 7% to 7.5% range, which, while lower than the NRF forecast, is still considerably above average, with the season extending even further this year given consumer concern over potential shortages and late deliveries. A Deloitte survey indicated that overall holiday budgets are expected to increase by ~5%, while 68% of consumers in the survey expect higher prices this year, the effect being a 15% budget increase for high-income groups and a 22% decline for low-income spenders, with 70% of retail executives expecting consumers to spend more this year than last. That same survey also indicated that while gift spending is expected to be up 3% y/y, non-gift spending is expected to be down 2%, while the ‘Experience” category, which includes travel, hotel, restaurants, concerts, etc. is expected to be up 15% as restrictions on such venues are lifted. Looking at just the gift and non-gift spend, the increase in spending would be 0.54% y/y.
Expectations for how that spending will be allocated indicates that clothing will remain the most popular holiday spending item, garnering 18.5% of planned spending, with pets the smallest (6.5%) of the major categories. Health & Wellness is expected to see the most growth (22.8% y/y) while gift cards are the only spending category that is expected to see negative growth. 25% of shoppers do not expect to find any items out of stock, leaving 75% that do. 49% of shoppers expect stock outs in electronics while only 9% expect stock outs in the pet category. Interestingly 33% of consumers in the survey indicate that they hold the delivery company as the party responsible for delays or stock outs, while 27% believe they are tied to weather or supply disruptions, and 27% blame the retailers themselves. Only 6% blame delivery personnel or company employees, and 85% of respondents indicated that free delivery was more important than fast shipping and 69% of consumers in the survey indicated that the biggest criteria for selecting a particular retailer was ‘getting a great deal’, with ’variety of products’ and ‘high quality (trust)’ coming in tied for 2nd place at 49%.
Given the inflationary pressures already seen this year, 50% of consumers polled cited increased food prices as a reason for spending less and 39% of those spending more this year cited the higher cost of products in general as the reason, and while the CPI for all items has increased 5.4%[2] over the last year (9/20 – 9/21), the Bureau of Labor says that ‘Food at Home’ costs have increased only 4.5%. Anyone buying groceries would likely find that number hard to believe given that the price of corn has increased 59.2% and the price of chicken has increased 31.6% over the last year (wholesale) as an example. As we have noted in the past, typical holiday discounting, while still available, will both start from a higher base and will likely be offered on less products. While we expect the holiday season to grow from last year’s level, we expect much of that growth to come from higher prices and a longer selling season with early ordering a metric that could make the holidays look better early on and fade later. We are optimistic for CE spending during the holiday season, but less so that last year where pent-up demand fueled a strong season.
[1] Excludes Auto Dealers, Gasoline stations, and restaurants. Includes the period between November 1 and December 31
[2] Not Seasonally Adjusted
NRF President and CEO Matthew Shay stated “There is considerable momentum heading into the holiday season. Consumers are in a very favorable position going into the last few months of the year as income is rising and household balance sheets have never been stronger. Retailers are making significant investments in their supply chains and spending heavily to ensure they have products on their shelves to meet this time of exceptional consumer demand.” While such a statement from a retail trade association president is to be expected, the NRF Chief Economist was a bit less sanguine noting that “Pandemic-related supply chain disruptions have caused shortages of merchandise and most of this year’s inflationary pressure. With the prospect of consumers seeking to shop early, inventories may be pulled down sooner and shortages may develop in later weeks of the shopping season. However if retailers can keep merchandise on the shelves and merchandise arrives before Christmas, it could be a stellar season.”
Other estimates that we have looked at call for a slightly less robust view, with most around the 7% to 7.5% range, which, while lower than the NRF forecast, is still considerably above average, with the season extending even further this year given consumer concern over potential shortages and late deliveries. A Deloitte survey indicated that overall holiday budgets are expected to increase by ~5%, while 68% of consumers in the survey expect higher prices this year, the effect being a 15% budget increase for high-income groups and a 22% decline for low-income spenders, with 70% of retail executives expecting consumers to spend more this year than last. That same survey also indicated that while gift spending is expected to be up 3% y/y, non-gift spending is expected to be down 2%, while the ‘Experience” category, which includes travel, hotel, restaurants, concerts, etc. is expected to be up 15% as restrictions on such venues are lifted. Looking at just the gift and non-gift spend, the increase in spending would be 0.54% y/y.
Expectations for how that spending will be allocated indicates that clothing will remain the most popular holiday spending item, garnering 18.5% of planned spending, with pets the smallest (6.5%) of the major categories. Health & Wellness is expected to see the most growth (22.8% y/y) while gift cards are the only spending category that is expected to see negative growth. 25% of shoppers do not expect to find any items out of stock, leaving 75% that do. 49% of shoppers expect stock outs in electronics while only 9% expect stock outs in the pet category. Interestingly 33% of consumers in the survey indicate that they hold the delivery company as the party responsible for delays or stock outs, while 27% believe they are tied to weather or supply disruptions, and 27% blame the retailers themselves. Only 6% blame delivery personnel or company employees, and 85% of respondents indicated that free delivery was more important than fast shipping and 69% of consumers in the survey indicated that the biggest criteria for selecting a particular retailer was ‘getting a great deal’, with ’variety of products’ and ‘high quality (trust)’ coming in tied for 2nd place at 49%.
Given the inflationary pressures already seen this year, 50% of consumers polled cited increased food prices as a reason for spending less and 39% of those spending more this year cited the higher cost of products in general as the reason, and while the CPI for all items has increased 5.4%[2] over the last year (9/20 – 9/21), the Bureau of Labor says that ‘Food at Home’ costs have increased only 4.5%. Anyone buying groceries would likely find that number hard to believe given that the price of corn has increased 59.2% and the price of chicken has increased 31.6% over the last year (wholesale) as an example. As we have noted in the past, typical holiday discounting, while still available, will both start from a higher base and will likely be offered on less products. While we expect the holiday season to grow from last year’s level, we expect much of that growth to come from higher prices and a longer selling season with early ordering a metric that could make the holidays look better early on and fade later. We are optimistic for CE spending during the holiday season, but less so that last year where pent-up demand fueled a strong season.
[1] Excludes Auto Dealers, Gasoline stations, and restaurants. Includes the period between November 1 and December 31
[2] Not Seasonally Adjusted
[1] Not Seasonally Adjusted
[1] Category-level averages are based on the no. of shoppers who plan to purchase the category. The sum of category averages would not equal the average retail spend ($927) which is calculated based on the no. of shoppers who plan to purchase at least one category. Sample size (N)=3,836
[1] Category-level averages are based on the no. of shoppers who plan to purchase the category. The sum of category averages would not equal the average retail spend ($927) which is calculated based on the no. of shoppers who plan to purchase at least one category. Sample size (N)=3,836
Holiday Spending History, ROC & Forecasts - Source: NRF, US Census Bureau
Consumer Stock out Expectations -- Source: Deloitte
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