Retailers could be jingling all the way to the bank this holiday season thanks in part to improved employment numbers and lower gas prices, according to a New Mexico State University researcher.
“I expect a solid holiday sales season this year,” said Bruce Huhmann, an associate professor of marketing in NMSU’s College of Business.
Huhmann’s forecast this year for New Mexico is a 2.7 percent increase over 2013 holiday sales. Nationally, he predicts a 3.9 percent increase for fourth-quarter retail sales, following increases of 3.5 percent in 2013, 3 percent in 2012 and 4 percent in 2011.
Since 2005, Black Friday has been the biggest shopping day of the year. During the long weekend after Thanksgiving Day, retailers typically ring up 9 to 10 percent of annual retail sales Huhmann said.
“The ever-earlier start of holiday shopping, or ‘holiday creep,’ is approaching a tipping point,” Huhmann said. ShopperTrak, a Chicago market-research company, expects Thanksgiving Day will replace Black Friday in 2014 as the biggest shopping day. This switch is occurring because more stores are opening earlier on Thanksgiving Day. He said the busiest shopping days of this year should be Thanksgiving Day, Black Friday, Cyber Monday and the weekend before Christmas.
“Holiday sales are important to retailers, as they produce one-third of annual retail industry profits,” Huhmann said. “More than one-fourth of all retail sales occur from October through December. For some retailers, sales during these three months are 40 percent or more of annual sales.”
Huhmann said his sales forecast is slightly lower than other industry projections, which range from 4 to 4.5 percent. The National Retail Federation, the world’s largest retail trade association, projects $616.9 billion in November and December sales – a 4.1 percent increase. However, PricewaterhouseCoopers estimates the average U.S. household will spend $684 on the holidays in 2014, down roughly 7 percent from $735 last Christmas.
Since the Great Recession, consumers have become more promotion-oriented, Huhmann said. Although wages are creeping upward and the economy has improved slowly since the 2008-2009 crash, consumers have grown more confident, and are buying more cars and other durable goods. That trend, though, is cresting, he said.
Reports from several indexes of consumer confidence, outlook assessment and future expectations show that consumers have an increasingly optimistic outlook, which Huhmann said will boost holiday spending.
Labor demand continues to increase nationally, with the national unemployment rate down to 5.9 percent in September 2014, according to the U.S. Bureau of Labor Statistics, compared to 7.2 percent one year earlier.
New Mexico’s labor demand remained largely unchanged during the past year, and the state’s unemployment rate of 6.6 percent is higher than the national rate – Huhmann expects this will lead to lower holiday retail sales for local compared to national merchants.
Lower fuel prices should have a positive impact on spending this season. Huhmann said a good rule of thumb is that every one-cent decline in gas prices leads to a $2-per-person increase in total consumer spending and a $4-per-person increase in disposable income for the holiday season.
“On average, gasoline prices are 7 percent lower than last year,” he said, “which should boost holiday retail purchases, especially by middle- and lower-income consumers.”
While online shopping continues to grow, Huhmann said more than 87 percent of sales still take place in brick-and-mortar stores. Consumers are focused on getting the best deals when they shop, but retailers have become more savvy in recent years about managing their inventory to minimize profit-reducing markdowns.
Huhmann said next year’s sales could continue to grow, especially if workers begin to see the pay raises that employers have been deferring.
Information from NMSU