Retail Sales Up 3.5% for the Holidays

Pent up demand for consumer products over the last two years and a sense that things are getting better or at least not getting worse will cause consumers to spend for the holidays. Retailers should expect sales to be up from a year ago and the surprise is likely to be a better than anticipated increase. I project an average increase in holiday retail sales, excluding automobiles, of 3.5%. Of course some areas will be better and some worse.

The economy appears to be improving slowly. Corporations have downsized and are generally profitable. Consumers have pulled in their belts and are shedding debt. There is money on the sidelines ready to invest in promising new business ventures. Merger and acquisition activity has increased significantly over a year ago. The unemployment rate has stabilized although it is not yet improving.

Retailers in general have a pessimistic attitude going into the holiday season this year and have consequently been very careful about holding inventory levels down. The result will be less discounting than in recent years. Low inventory levels present the biggest obstacle to a robust sales increase.

Growth in Gross Domestic Product (GDP) came from a low in the fourth quarter of 2008 and peaked in the fourth quarter of 2009 near 5% per year. Since then it has been declining, resulting in concern that the economy will dip back into recession toward the end of this year or in 2011. Such concerns have motivated speculation about further action by the Federal Reserve to stimulate the economy. Interest rates are expected to remain very low. This change in the GDP should not affect retail sales for the holidays in 2010 but could reflect a trend that will have an impact on sales in 2011.

Retail and food service sales excluding motor vehicles were up for the third quarter by 5.6% from the same quarter last year and up 5.6% for the first nine months according to the U.S. Department of Commerce. This is the best indicator of healthy sales increases for the holidays.

The National Retail Federation reported back to school sales up in 2010 from a year ago and they forecast holiday sales to be up by 2.3% nationwide after a decline in 2008 and almost no growth in 2009. I think their estimate is on the low side.

The unemployment rate remains high, near 10%, according to the Bureau of Labor Statistics. However, it has leveled and appears stable after increasing rapidly from mid 2008 to early 2009.

Home sales and construction activity dropped following the expiration of the homebuyer’s credit according to the Beige Book report of current economic conditions published by the Federal Reserve. Money not going into mortgage payments is available for retail purchases so this is positive for retailers.

Automobile sales are reported by the U.S. Department of Commerce to be up 9.2% for the first nine months of the year over the same period a year ago. This is a positive indicator and likely reflects demand for automobiles resulting from two years of putting off a purchase.

Consumer confidence reported by the Conference Board improved slightly in October over September but still remains at a low level of 50.2 compared to the index of 100 in the base year of 1985. Consumer attitudes are influenced by high unemployment rates. The expected increase in sales for this holiday season is more from pent up demand than consumer confidence in the economy. After holding back on purchases for the last two years consumers will loosen the purse strings for family and friends during this holiday period. Next year will depend on whether or not consumers see continued improvement in the economy or another dip into recession.

Retailers should take advantage of this holiday season to attract new customers, gain market share and generate more sales volume. However, retailers should be cautious going into 2011. Keep inventory levels in check. The first half of 2011 is likely to be difficult and will remain so until there is some indication of consistent growth in the economy. We are very likely in for a few more years of slow progress and could see some negative surprises along the way.

About G. A. Wright Sales, Inc:
Based in Denver, Colorado, G. A. Wright Sales Inc provides advertising and sales promotion services to retail businesses. Founder and CEO Gary Wright is the author of numerous studies and reports about retailing and is a speaker for marketing and business events. For more information, visit www.gawrightsales.com or call 303-333-4453.

For More Information Contact:

Gary Wright
G.A Wright Sales Inc
10325 E. 47th Ave
Denver, CO. 80238
303-333-4453
www.gawrightsales.com
info@gawright.com