Holiday Sales' Top Threat? Unemployment

After a tumultuous first half of the year and unremarkable back-to-school results, U.S. retailers have emerged with an optimistic outlook for the upcoming holiday season. According to a recent BDO USA survey, CMOs at leading U.S. retailers forecast a solid 4.1 percent increase in overall holiday store sales.

This year's projection falls directly in line with the National Retail Federation's 4.1 percent expected increase in holiday sales, and is a full percentage point higher than actual retail sales gains in the 2013 season. Overall, a majority (65 percent) of retailers believe sales will increase this year, with only 12 percent expecting a sales decrease. The increased optimism in growth likely points to ongoing improvements in the broader economy: Housing markets are recovering, the employment picture is slowly rebounding and consumer confidence is rising, though still volatile.

Holiday Season Total Store Sales Forecasts
2014         2013         2012         2011         2010         2009  
+4.1 %       +3.8 %       +4.7 %       +2.9 %       +3.5 %       +2.5 %
Amidst ongoing hype around the latest iPhone release, smart watches and a slew of other new tech devices, retail CMOs once again anticipate that consumer electronics will be both the top performing (73 percent) and most discounted (58 percent) category this holiday season. The Consumer Electronics Association predicts that Americans will spend a record $34 billion on electronics alone this season, with tablets, laptops, televisions, smartphones and videogame consoles rounding out the list of the top gadgets on adults' wish lists.

Meanwhile, apparel (13 percent) hangs on as the second-highest-performing segment, according to retail CMOs, and department stores are doubling down on their seasonal hiring in anticipation: Macy's announced plans to add 86,000 workers this season, while Kohl's expects to hire 67,000.

"Sales gains have been uninspiring this year, but retailers have pushed through, and there's confidence in the air as they gear up for the make-or-break holiday season,” said Doug Hart, partner in the retail and consumer product practice at BDO USA, LLP. "To execute on this confidence, retailers need the right mix of attractive new products and enticing deals to loosen the purse strings of skittish consumers. Expect to see an even longer season this year, with heavy promotions from November through January.”

These findings are from the most recent edition of the BDO Retail Compass Survey of CMOs, which examined the opinions of 100 chief marketing officers at leading retailers located throughout the country. The telephone survey was conducted in September and October of 2014.

Additional findings of the 2014 BDO Retail Compass Survey of CMOs include:
  • Gift card sales growth plateaus. After high demand for gift cards during the past several holiday seasons by shoppers looking for an easy and flexible purchase, retailers have adjusted their expectations this year. Among surveyed retailers who sell gift cards, 38 percent expect gift card sales to increase this year, a notable drop from 2013, when a resounding 61 percent forecasted an increase. Overall, retailers project a 2.7 percent increase in gift card sales this season, compared to last year's projection of 6.9 percent growth. However, given heightened demand for gift cards over the past several years, it's not surprising that sales expectations have now leveled out. Adjusted growth in sales could still spell solid margins this year, as well as a welcomed boost come January and February.
  • Retailers will keep inventory levels constant despite optimism. Many retailers began purchasing holiday inventory early this year as uncertainties around labor agreements at critical West Coast ports forced them to consider contingency plans. Still, despite early buying and slightly more upbeat overall sales projections, retailers are largely sticking with 2013's numbers when it comes to stocking shelves with merchandise. A majority of retailers (55 percent) say they have kept their inventory levels consistent with last year, pointing to an expected 1.1 percent increase in overall inventory for the 2014 season. Despite recent improvements in consumer confidence levels, only slight gains in disposable income over the past year have left consumers cautious and unpredictable, meaning that concerns about oversupply and the subsequent need to cut prices later in the season remain top of mind for retailers.
  • Unemployment remains top threat to holiday sales. In terms of the single issue that presents the biggest risk to holiday sales, a plurality of retailers (45 percent) identify unemployment as their number one perceived threat. So far, 2014 has brought promising but sluggish gains in employment levels, with U.S. unemployment dropping below 6 percent for the first time since before the recession. Still, as long-term unemployment and underemployment continue to bog down consumers' disposable income, retailers remain cognizant of tight purse strings. Regarding other risks to sales, the number of retailers citing energy and fuel costs (15 percent) remains constant with last year's figures, as does the amount that cite global market volatility (7 percent vs. 9 percent in 2013) and tax changes (7 percent vs. 6 percent in 2013). Meanwhile, on the heels of a slow but steady recovery across many U.S. housing markets this year, fewer retailers (12 percent vs. 16 percent in 2013) noted housing market changes as their greatest risk to holiday sales.
The BDO Retail Compass Survey of CMOs is a national telephone survey conducted by Market Measurement, Inc., an independent market research consulting firm, whose executive interviewers spoke directly to chief marketing officers, using a telephone survey conducted within a scientifically-developed, pure random sample of the nation's retailers.
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