NRF calls for 3.6 percent annual increase for holiday season retail sales

Not before too long, the holiday shopping season will be here in full bloom. And while it still may be a tad too early to specifically gauge how things will turn out, the National Retail Federation (NRF) appears to be pretty optimistic in its forecast, not unlike past years.

Holiday sales, as defined by the NRF, are sales in the months of November and December and exclude autos, gas, and restaurant sales. And for 2016 the NRF is calling for holiday retail sales to head up 3.6 percent annually to $655.8 million, which marks a decent boost compared to the 10-year average of 2.5 percent and is also above the seven-year average of 3.4 percent, going back to the beginning of the economic recovery in 2009.

As expected, e-commerce is again expected to play a large role in holiday shopping, with the NRF saying it expects online sales to head up between 7 and 10 percent annually to as much as $117 billion, which is 10.3 percent higher than last year’s online holiday sales projection.

While the NRF’s holiday sales forecast is promising it is actually slightly off from 2015’s and 2014’s 3.7 percent and 4.1 percent forecasts, respectively. The 2015 holiday shopping season ended up seeing a 3.0 percent annual increase.

The NRF’s holiday sales forecast, according to the organization, is based on an economic model that uses several different types of indicators, including consumer credit, disposable personal income, and previous monthly sales releases

“Consumers have seen steady job and income gains throughout the year, resulting in continued confidence and the greater use of credit, which bodes well for more spending throughout the holiday season,” NRF Chief Economist Jack Kleinhenz said. “Increased geopolitical uncertainty, the presidential election outcome and unseasonably warm weather are the main issues at play with the greatest potential to shake consumer confidence and impact shopping patterns. However, the economic spending power of the consumer is resilient and it should never be underestimated.”

This forecast comes at a time when things remain decidedly uneven in terms of economic growth and activity. And it comes in the form of various economic indicators, including sluggish GDP, still-high inventory levels, fluctuating employment levels.

But even against that backdrop, there is optimism about how things could turn out as consumer begin to think about holiday shopping, according to Joe Dunlap, Managing Director of Supply Chain Services, for commercial real estate firm CBRE.

“I think this year we are probably going to see better results hopefully, largely because of the additional year of experiencing data analytics focusing on customer behaviors over the last 12 months,” he said. “We have been through a couple of seasons where things have been more reactive. I think this will be a season in which we will see more retailers be proactive, and they understand how customers behave relative to certain media blitzes or advertisements hyping online or in-store discounts. They have a pretty good understanding of what is driving consumer behavior, and now it is a matter of being more proactive about that to drive consumer behavior in line with what drives their margins or coincides with their better margins.”

When asked what some of the fundamental supply chain and logistics changes are during the holiday shopping season that retailers find themselves up against now compared to recent years, Dunlap said there has been a slow and steady evolution.

The most prominent factor driving a lot of it, he said, has been consumers’ desire for immediate gratification, in terms of receiving goods soon after ordering, or what he called the “speed” factor.

“This is also in the form of order cycle times, moving transportation closer to distribution facilities and population centers and that underlying type of activity that really contributes to the continued option of mobile technology, which is feeding that frenzy of consumer behavior and also driving that faster immediate gratification behavior [by consumers,” he noted. 

Another potential difference for this year’s holiday shopping season is that instead of seeing a huge spikes in activity by UPS and FedEx, there instead may be a spreading of demand over a longer period of time, which Dunlap said may be a good thing, due in part to better analytics and driving consumer behavior.

“It is desirable for retailers to spread consumer demand for a longer period of time and maybe pull it forward like retailers have done for other holidays like Halloween, Easter, and Valentine’s Day, where they are stocking shelves earlier ahead of demand. There is a need for retailers to spread that demand to fulfill it in a reasonable amount of time.”