Holiday Sales Forecast
We are projecting a 3.5 percent increase in nominal retail holiday sales this season — significantly better than last year but still well below the long-term average. On the plus side, the consumer oriented variables that drive our forecast model all are stronger than they were a year ago. An economic recovery that primarily benefited a small percentage of Americans for several years has gained traction in 2014 and gradually is becoming increasingly inclusive.
More Americans are telling pollsters that economic conditions are improving. This should translate into a better holiday season than last year but certainly not a strong one.
However, we expect the aggressive promotional environment to persist, and we see a dearth of new or must-have gift items. So while we remain cautious, there is some upside potential if retailers manage to avoid the desperation discounting we witnessed last year — or downside if it worsens.
Some retailers already have said they’ll be more disciplined this season with respect to price discounting. It’s a worthy sentiment considering how badly things turned out last holiday season — but we’ll believe it when we see it. That is not to say there won’t be big losers despite our expectations of a better holiday season. We would categorize potential losers into two camps (possibly overlapping). The first group is chronic underperformers that have managed to scrape by for years despite repeated missteps, failures in execution or inaction. Many cannot withstand another bad holiday season. The second group consists of companies poorly positioned to respond in a meaningful way to the online onslaught.