2020 Retail Holiday Forecast

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2020 Retail Holiday Forecast

The last two months of the year are the most important for retailers to make incremental sales, so how will American stores and online shopping destinations do with no new fiscal stimulus and virus cases on the rise? The National Retail Federation and Prosper Insights & Analytics are out with their Annual 2020 Holiday Survey for a glimpse into how US consumers plan to spend and celebrate. Here are the most important takeaways:

#1: Total spending: US consumers plan to spend $997.79 on gifts, holiday items (i.e. decorations and food), and additional “non-gift” purchases for themselves and their families. That’s down around $50 or 4.8 percent from last year.

#2: Spending by category: out of the $50 fall in total spending, “nearly all ($45) of the decrease comes from consumers’ hesitation to use seasonal sales and promotions to buy other, non-gift purchases for themselves and their families.”

On the plus side: consumer spending on gifts is mostly unchanged from 2019, down a little over $8 or 1.3 percent. Per person spending on other holiday items (i.e. decorations) is up slightly by just over $2 or 1.2 percent. Overall, “expected spending remains significantly higher than the 5-year average for both those categories.”

#3: Timing on spending: almost half (42 pct) of respondents said they planned to start holiday shopping by the end of October, while 41 pct said they would begin in November.

#4: Travel impacts: “one in five (19 pct) holiday shoppers say that they typically travel for the holidays but will stay home instead this year. Over half (53 pct) of those who changed their holiday travel plans said they are likely to spend more on holiday items this year, specifically because they will not be traveling.”

The “vast majority” of participants also said they “could be convinced to start shopping earlier than they typically do through incentives like holiday deals or to avoid crowds or the stress of last-minute shopping.” Interestingly, “extra money from a government stimulus” was 7th down on the list of “what would convince consumers to start shopping earlier than usual?” It was only ahead of “Nothing” at 13 percent and “Other” at 2 pct.

#5: Holiday shopping destinations: a majority of survey respondents (60 percent) plan to buy holiday items online, up from 56 percent in 2019. Almost every online shopper (91 pct) plans to use free shipping, almost half (44 pct) plan to buy online but pick up in store, and almost a fifth (16 pct) want to use same-day delivery.

Other “top holiday shopping destinations for consumers include department stores, mentioned by 45 percent, discount stores (43 pct), and grocery stores or supermarkets (42 pct).”

The upshot: people plan to buy less for themselves (even if there’s a sale) and in total this year versus in 2019. Nevertheless, they are taking advantage of earlier deals and online shopping/shipping options with expected holiday spending on gifts and décor above their 5-year averages. Both trends make sense given that US consumers have more disposable income from the money they’re saving by not traveling, and they’re spending slightly more on holiday decorations as they remain mostly at home this year. The offsetting factors are recessionary levels of unemployment and slack consumer confidence. Given those issues, we find the NRF survey findings remarkably upbeat.

In terms of how these changing consumer dynamics will affect upcoming economic data and investor perceptions of the cadence of US economic recovery, the most important thing to know is that major US retailers are dramatically altering their customary Holiday promotional cycle. A few quick examples:

Bottom line (1): November US retail sales are going to look very good, pulling forward Holiday sales away from December. This data is an input for a host of GDP estimation models, so it will appear that the US economy is accelerating mid-Q4 even though that will not likely be sustainable.

Bottom line (2): retailers have had plenty of time to structure their holiday inventory, promotions and logistics, and have clearly taken an aggressive approach by making sure consumers have multiple ways of shopping/receiving orders for longer than usual. Yes, they still face large headwinds with still high unemployment, a lack of more fiscal stimulus and an uncertain economic/public health environment. But there are also some important tailwinds to consider, such as the marginal consumer having more money to spend on gifts/decorations/home items from not travelling this year.

Additionally, the retail industry has consolidated over the past few months, affording survivors more market share and less competition. Even though this sector seemed in deep trouble earlier this year especially when the pandemic hit, the S&P Retail Index (XRT) is actually up (+14.0 pct) more than the S&P 500 (+4.3%) year-to-date. Ultimately, this month and next at least give retailers still operating a chance to leverage holiday sales to get through 2021 when a vaccine is in wide distribution.

Source: https://nrf.com/media-center/press-releases/consumers-prioritize-spending-family-friends-ahead-holiday-season