D E B O R A H W EI N S W I G M a n a g i n g D i r e c t o r ,
F u n g G l o b a l R e t a i l & T e c h n o l o g y d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m
U S : 6 4 6 . 8 3 9 . 7 0 1 7 H K : 8 5 2 . 6 1 1 9 . 1 7 7 9
C N : 8 6 . 1 8 6 . 1 4 2 0 . 3 0 1 6
1) Fung Global Retail & Technology is optimistic about theprospectsforholidaysalesthisyearforecastinggrowthof3-4%, and we believe there could be upside to projections,givenan improvingmacro backdrop. Specifically,we think alower unemployment rate, wage gains, and lower fuel andfoodpricesallbodewellforholidayretailspending.
3%–4% this year versus 3.2% last year and an averageincreaseof2.5%overthelast10years(bothhistoricalfiguresare according to theNational Retail Federation). TheNRF isprojectingholidaysalesgrowthof3.6%thisyear.Onaverage,industry groups are forecasting growth of roughly 3.7% fortheperiod.
ago, according to outplacement firm Challenger, Gray &Christmas.However,bothAmazonandTargethaveincreasedhiring at the distribution centers that facilitate theire-commerce businesses, as e-commerce sales growth isexpectedtoagainoutpacein-storesalesgrowth.
4) E-commerce is expected to gain further share over the
holiday season. In the second quarter, online sales grew by15.8%andaccountedfor8.1%oftotalretailsales,accordingtotheUSCensusBureau.
5) According to the Consumer Technology Association (CTA),68% of consumers will buy electronics this holiday season,and theywill spend 3.1%more on electronics than they didlast year. The CTA expects headphones to be the mostpopular tech gift, driven by the movement toward wirelessheadphones.
6) Weexpect that toysrelatedto theupcomingmovie releases
of Trolls (November 4), Moana (November 23) and RogueOne: A StarWars Story (December 16)will be at the top ofwish lists this holiday season. Toy sales were particularlystrong last year, the best in a decade, thanks in part to thereleaseoftheStarWars:TheForceAwakensmovieaheadoftheholidayseason.Thecategory’sstrengthlastyearcreatesadifficultsetupforthisyear.
7) Theconfigurationof thecalendar is favorable for retail sales
thisholidayseason,astherearetwoadditionaldaysbetweenThanksgiving and Christmas this year, although SuperSaturdayfallsonthedaybeforeChristmas.
8) December temperatures are expected to be colder than last
EXECUTIVESUMMARYWeseeseveralpositivedatapointsgoingintotheholidayseason,includingan improving macro backdrop. Specifically, a lower unemployment rate,wagegains,andlowerfuelandfoodpricesallbodewellforstrongholidayretailsales.TheunemploymentrateinSeptemberthisyearwas5%,10bpslowerthanlastSeptember.AsofSeptember,wagegrowthhadincreasedby20 basis points year over year. Gas prices were down roughly5%yearover year in Septemberonaper-gallonbasis, and the year-over-year change in food prices (as measured by the Consumer Price Index)flattened out in August, reaching levels unseen since 2009/2010. Inaddition, retailers faceeasycomparables relative to lastyear’schallengingholiday season, as the weather was unseasonably warm and thepromotionalenvironmentverycompetitivelastyear.Allofthesefactorsarelikelytocontributetoamorerobustholidayshoppingseasonthisyear.
We believe that retailers are planning their businesses (and inventory)conservatively. Holiday hiring plans are fairly consistent with last year’slevels,althoughbothAmazonandTargetplanto increasetheirnumberofwarehousehires inanticipationofe-commercesalesgrowthoutpacing in-storesalesgrowthonceagain.Thatsaid,thereareseveraltrendsthatcouldplay out over the holiday season that could put some pressure on retailsales, including tough comparables in toys, election uncertainty andconsumers’ current preference for spending more on leisure andexperiencesthanontangiblegoods.
Toysaleswereparticularlystronglastyear,thebestinadecade,thanksinparttothereleaseoftheStarWars:TheForceAwakensmovieaheadoftheholidayseason.Thecategory’sstrengthlastyearcreatesadifficultsetupforthis year. The Pokémon Sun and PokémonMoon video games, set to bereleasedNovember18,arenotablementionsinthetoycategorythisyear:theyareexpectedtocontinuethe“Pokémania”trendthatbeganwiththereleaseofPokémonGoinJulythisyear.
AccordingtoShopperTrak,retailtraffictypicallydipsboththeweekbeforeandweekofanelection,presumablybecauseshoppersarefocusedontheoutcome. However, despite the uncertainty caused by the upcomingelection,most retailers believe that consumerswill continue to spend fortheholidayseasonthisyear,andevenmakeupforthedropthattypicallyoccursaroundElectionDay.
Finally,consumers’much-discussedshifttospendingonexperiencesratherthan on tangible goods could continue to hamper sales at the mall thisholidayseason.This trendofspendingon leisureoverproducts,especiallyamongmillennials,hasheldbackretailsalesgrowthforoverayear.
HOLIDAYPROJECTIONSSLIGHTLYMOREOPTIMISTICTHANLASTYEAR’SFORECASTSA number of retail research firms and trade groups have released theirforecasts for the holiday season. On average, projections call for salesgrowth of roughly 3.7%,which is higher than last year’s growth rate andabove both the 10-year average of 2.5% and the seven-year average of3.4%.TheNRFexpectsretailsales inNovemberandDecemberto increaseby3.6%,toreach$655.8billionthisyear,upfrom$626.1billionlastyear.In2015, holiday retail sales increased by 3.2% over the previous year,accordingtotheNRF.
An AlixPartners survey of about 1,000 US consumers found that 83% ofrespondentsexpecttospendaroundthesameamountormorethisholidayseasonastheydidlastyear.About32%intendtostartshoppingearlierthisyearthantheydidlastyear.
Figure1.HolidaySeasonSalesProjections
2016Forecast 2015Forecast
NRF 3.6% 3.7%
Deloitte 3.6%–4% 3.5%–4%
AlixPartners 3.3%–4% 2.8%–3.4%
TheNPDGroup 3% 5%
FungGlobalRetail&TechEstimate 3%–4% 3%–4%
Source:NRF/Deloitte/IHS/AlixPartners/TheNPDGroup
• TheNRF’sholidaysales forecastexcludesautos,gasandrestaurantsales, and is based on an economic model that uses severalindicators, including consumer credit, disposable personal incomeandpreviousmonthlyretailsales.
• Deloittenoteselevatedconsumerconfidenceandsaysthatspendinghas rampedup thisyearon thebackofastrong labormarket.Thefirm expectsmarketplace fragmentation to be themajor disruptorthisholidayseason.
• AlixPartners’methodforpredictingretailsales istouseconsumers’activity in the previous year as an indicator. The firm looks at theapparel and footwear, furniture, electronics and appliances, food,beverage,healthandpersonal care,andsportinggoodscategories,but excludes the motor vehicles, fuel, restaurant and drinkingestablishmentcategories.
• The NPD Group conducted its Holiday Purchase Intentions Surveyonline in September 2016 among a representative sample of NPDGrouponlineconsumerpanelmembers.Thesurveywascompletedby3,499individualsintheUSaged18andolder.
HOLIDAYHIRINGPROJECTEDTOBEFLAT,EXCEPTFORANUPTICKTOSUPPORTE-COMMERCEOutplacement firmChallenger,Gray&Christmas estimates that the retailsectorwilladd700,000seasonal jobsforthe2016holidayseason,roughlythesamenumberaslastyear.TheNRFisforecastingthat640,000–690,000additionalholidayworkerswillbehiredthisyearversus675,300 lastyear.Although seasonal hiring will remain stable this year, Challenger, Gray &Christmas notes increases in seasonal job in other sectors, such astransportation, warehousing and entertainment venues. For example,Target has bumped up its seasonal hiring for its distribution facilities thisyearhiring7,500employeesfor itsdistributionfacilities.Thismayserveasan indicatorthatretailersareexpectingthemaindriverofsalesgrowthtobee-commerce thisholiday season, rather thanother sales channels. Theoverall flat seasonal hiring trend may suggest that retailers are notexpectingdramaticchangesinsalesthisyear.
ThebiggestdeclinesinseasonalhireswillbeatKohl’sandFedEx.Kohl’swillhire12.8%fewerseasonalworkersthanitdidlastyearandFedExwillhire9.1% fewer. On the other hand, JCPenney plans a 33.3% increase in itsseasonalworkforceversus lastyear, including2,000seasonalworkerswhowillfocusonfulfillingonlineorders.AndAmazonrecentlyannouncedthatitis creating 120,000 seasonal jobs in customer fulfillment and customerservice, a 20% increase over last year. Both of these increases reflectretailers’growingawarenessoftheimportanceofretaile-commercesales.
E-COMMERCEEXPECTEDTOCONTINUETOGAINSHAREE-commerceisexpectedtocontinuetogainshareovertheholidayseason.According to the US Census Bureau, online sales grew by 15.8% in thesecondquarter,andaccountedfor8.1%oftotalretailsales.
MACROBACKDROPCONTINUESTOIMPROVEA number of macro indicators have improved in recent months and alsoyearoveryear.TheUSunemploymentratehitaneight-yearlowof4.7%inMay this year and was 5% in September. The University of Michiganannounced that its consumer sentiment index reading hit 91.2 inSeptember,upfrom87.2theyearprior.Gaspriceswere$2.33pergalloninSeptember,down5%yearoveryear,andthehousingmarketisrecoveringas well. According to the S&P CoreLogic Case-Shiller 20-City CompositeHomePriceIndex,UShomepricescontinuedtoriseatarateof4.8%inJuly.These macroeconomic factors all bode well for a more robust holidayshoppingseasonthisyear.
HOTHOLIDAYTECHGIFTABLESTechgadgetshaveinfiltratedourlivesinmanyways,andtheyhavebecomepopular itemsforholidaygiftgiving,evenfornontechies.AccordingtotheCTA,68%of consumerswillbuyelectronics thisholiday season,and thosegivingelectronicswillspend3.1%moreonthemthantheydidlastyear.TheCTA expects headphones to be themost popular tech gift given this year,driven in part by the tech industry’s movement toward wireless audiodevices.ThetechproductsUSconsumersmostwanttoreceiveasgiftsarelaptops, TVs, smartphones, tablets and video-game consoles, according totheCTA.
Other hot products this holiday season include virtual reality headsets;smartwatches and fitness bands, many of which are now in their secondgeneration; drones; audio gear such aswireless headphones and externalspeakers; and smart home devices (smart thermostats and digitalassistants). Snap (formerly Snapchat) has a new Snap Spectacles productthatwillbeimportanttowatchforifthecompanyreleasesitintimefortheholidays.
HOTHOLIDAYTOYSWe are also tracking the hot toys this holiday season, along with theirprices. Toys that stimulate children’sminds, such as Fisher-Price’s Think&Learn Code-a-pillar, are expected to be the most sought-after items.Another likely hot seller this year is Cozmo, a small robot enabled withartificialintelligencethatisanexampleoftheintegrationoftechnologyandtoys. Cozmo has mobile app connectivity and is capable of developing aunique personality as it spends time with the user. We also expect toysrelated to the upcoming movie releases of Trolls (November 4), Moana(November23)andRogueOne:AStarWarsStory (December16) tobeatthe top of wish lists this holiday season. Below, we highlight what areprojectedtobethehottest-sellingtoysthisseason.
WalmartandTargetareoffering largeselectionsof themostpopular toys.Walmart’s catalogue is offering 32 and Target’s 80 pages of the retailers’best toy selections. Walmart prices start from October 30 throughDecember24,whileTarget’srununtilNovember23.
FAVORABLECALENDAR,WITHTWOEXTRADAYSBETWEENTHANKSGIVINGANDCHRISTMASThis year, there are two more days between Thanksgiving and Christmasthantherewerelastyear:thereare31daysbetweentheholidaysthisyearcompared with 29 last year. Depending on the year, the number of daysbetweenThanksgivingandChristmasrangesfrom26(asin2013)to32(asin2012).
Firstup,though, isSingles’Day(whichfallson11/11,withtheones inthedate representing people who are single). The celebration originated inChinainthe1990s,andin2009,AlibabadecidedtooffersharpSingles’Daydiscountsonline,boostingawarenessof theholidayandmaking it intoaninternationalshoppingevent.
Asalways,ThanksgivingfallsonaThursday(November24thisyear).BlackFriday is the day after (November 25) and Cyber Monday falls on thefollowing Monday (November 28). Last year, Cyber Monday fell onNovember30.
GivingTuesday,nowinitsfifthyear,fallsonthedayafterCyberMonday(so,it will fall on November 29 this year). The global event is designed toencourage charitable giving, and heavily relies on social media andcollaboration.
“GreenMonday”wascoinedbyretailerstorepresentthebestshoppingdayinDecember,or the lastMondaythat isat least10daysbeforeChristmas,Thisyear,GreenMondayfallsonDecember12.
The Saturday before Christmas is called Super Saturday, and it is animportantdayforretailerstogenerateasmuchrevenueaspossiblebeforethe end of holiday-shopping season. Due to Christmas being on a Sundaythisyear,SuperSaturdaywillactuallyoccurthedaybeforeChristmas,whichisalsothedaythatChanukahbeginsthisyear.Lastyear,SuperSaturdaywassix days before Christmas,which gave consumers a reasonable amount oftime to purchase holiday gifts. Since Super Saturday is the same day asChristmas Eve and the start of Chanukah this year, many consumers areevenmorelikelytomakelast-minutegiftpurchasesinstoresthatdayratherthanonline.
This year, Chanukah starts on Christmas Eve and ends onNewYear’sDay.The holiday runs from Saturday, December 24, 2016, through Sunday,January1,2017.
HOLIDAYWEATHERFORECAST:COLDERTEMPERATURES,POSITIVEFORRETAILWeather-forecastingfirmPlanalyticsprojectsthattheeasternhalfoftheUScan expect a colder trend for November. The coldest comparisonswill befocusedintheSoutheastandOhioRiverValleyregions,strengtheningyear-over-yeardemandforwintercategoriesinthoseareas.DrierconditionsareexpectedrelativetolastyearthroughthePlainsandSoutheast,whichmaybenefit in-store traffic in those regions, while wetter conditions areanticipatedfortheNortheastandportionsoftheWest.Planalyticssuggeststhatwarmer temperatures in theWestmay challenge comps for seasonalgoodsinthatsectionofthecountry.
Planalytics projects that the colder-East/warmer-West divide will hold onintoDecember.ThecolderconditionsintheEastwilldriveholidaypurchasesofheating itemsandwinterapparel,unlike lastwinter,whenmuchof theeasternhalfof thecountrysawrecordwarmth.Thewarmwinter lastyearforcedmanyretailerstoofferdiscountedproducts inanattempttogetridofinventory.
Retailers inCaliforniaand the Inter-MountainWest canexpect challengingyear-over-yearcompsforseasonalcategories,accordingtoPlanalytics.Drierconditionsarealsoexpectedfornearlyallregions,mostnotablyfromTexasto the Great Lakes. These conditions should boost overall foot traffic torestaurants and shopping destinations during the high-volume holiday-shoppingperiod.
CONCLUSIONWe expect US holiday retail spending to increase by 3%–4% in 2016, asseveral positive data points suggest strong a strong shopping season thisyear.Onaverage, retail research firmsand industrygroupsare forecastinggrowthof3.7%fortheperiod.Theimprovingmacrobackdrop—includingalower unemployment rate, wage gains, and lower fuel and food prices—points to consumers increasing their spending this holiday season. Inaddition,weexpectthee-commercechanneltocontinuetoaccountforanincreasingshareofUSretailsales.Salesperformanceforthisholidayseasonshouldstackupfavorablycomparedwithlastyear.
