CMOs Express Cautious Holiday Optimism, Project 4.2 Percent Sales Lift

A skittish market and diminished back-to-school sales have U.S. retailers feeling cautiously optimistic for the upcoming holiday season. According to a new BDO USA survey, chief marketing officers (CMOs) at leading U.S. retailers forecast a 4.2 percent increase in overall holiday store sales, consistent with growth expectations in 2014. This year's projection is also only slightly higher than the National Retail Federation's expected 3.7 percent boost to $630.5 billion, slower than the 4.1 percent increase during last year's November-December period.
Holiday Season Total Store Sales Forecasts
2015 2014 2013 2012 2011 2010 2009
+4.2% +4.1% +3.8% +4.7% +2.9% +3.5% +2.5%

Similar to 2014, the majority of retailers (61 percent) believe sales will increase this year, with only 7 percent expecting a sales decrease, down from 12 percent last year. This could be due to signs of broader economic improvement, including the housing market's continued recovery and lower energy prices. However, despite experiencing cost-savings at the pump, consumers continue to be price sensitive and the level of sales expected from the windfall of cheaper energy has not yet materialized, even with retailers (28 percent) citing energy and fuel costs as a major influence this year. Reaffirming this is the less than stellar back-to-school sales, which resulted in an underwhelming August and September for retailers.

"The modest year-over-year increase could be attributed to increasingly parsimonious consumers, who are a product of the recession and not consuming as much as they once did," said Ted Vaughan, national leader and partner in the Consumer Business Practice at BDO USA, LLP. "And because of this consumers are favoring a more strategic and cost-conscious approach, no matter the season."

Vaughan continued, "This new type of consumer is also not motivated by sales events and has become conditioned to hunt and wait for the best price, knowing retailers will turn to an intense discounting strategy to move product and spur sales."

These findings are from the tenth edition of the BDO Retail Compass Survey of CMOs, which examined the opinions of 100 CMOs at leading retailers located throughout the country. The telephone survey was conducted in September and October of 2015.

Additional findings of the 2015 BDO Retail Compass Survey of CMOs include:

Consumers continue to display their love for the latest and greatest technology. Sixty-seven percent of retail CMOs anticipate that consumer electronics will once again be the top-performing product category this holiday season, while 51 percent expect they will also be the most discounted. According to the U.S. Consumer Electronics Sales and Forecasts, revenues for the consumer electronics industry are projected to grow 3 percent this year and reach an all-time high of $223.2 billion. Meanwhile, apparel (cited by 14 percent of CMOs) is expected to remain the second highest performing segment.

Gift card sales settle. It appears gift card sales are leveling off, with only 43 percent of CMOs expecting them to increase — down nearly one-third from 2013, when 61 percent of CMOs expected gift card sales to grow.

Inventory levels set to increase despite cautious optimism. This year, retailers expect overall inventory to grow by 3.4 percent, up from 1.1 percent in 2014, with half planning to increase their holiday season inventory purchases. This is nearly double the number of retailers who planned to increase inventory last year. Signs of broader economic improvement and growing consumer confidence may be encouraging retailers to ramp up their inventory levels: The Conference Board reports that its consumer confidence index increased to 103 in September — its highest level since January.

Unemployment diminishes as a concern. Overall, only a small percentage of retailers (26 percent) believe unemployment will have an impact on their holiday sales, down from 45 percent last year. Healthy job growth — reaching an average pace of 200,000 jobs added per month since 2013 — could be contributing to this notable decrease in concern. This is also the first year since 2009 that unemployment is not the leading issue predicted to impact sales. And, with the global economy experiencing sharp and lasting pains, like the devaluation of the yuan in the world's second largest economy, the number of retailers worried about global market volatility tripled, from 7 percent in 2014 to 21 percent this year.
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