2012 Holiday Spending Expected to See Slower Growth

Nov 6, 2012

Photo: Bloomberg

Shoppers are expected to spend more this year than last on gifts and other seasonal  goods this holiday season. That’s good news for retailers, some of whom collect up to 40% of their annual revenues in the last two months of the year.

The National Retail Federation (NRF) forecasts holiday sales growth of 4.1% in 2012, totaling $586 billion during November and December. However, the pace of annual growth appears to be diminishing. According to NRF findings, holiday sales grew 5.6% in 2010 and 5.5% in 2011.

Several factors are contributing to slowing growth. NRF and other sources cite high unemployment, higher commodity and gas prices, and overall uncertainty about America’s economic future, stemming in part from issues like the presidential election and looming sequestration cuts.  Unsurprisingly, more than half of consumers surveyed for NRF’s 2012 holiday sales forecast reported that continuing economic challenges will affect their holiday shopping.

“There’s still some general anxiety amongst consumers when it comes to how the state of the economy is impacting their spending plans,” says NRF Chief Economist Jack Kleinhenz. Still, he says, retailers can expect to see excitement around their promotions and plenty of bargain hunters both online and in stores.

More than half of consumers will shop for gifts online this year, according to NRF, with the average consumer completing about 40% of their holiday shopping on retailer and other websites. A 2012 holiday sales forecast from Shop.org, NRF’s digital division, shows online sales growth will continue to outpace retail sales, growing 12% this year. With value-focused consumers searching digital and physical stores, the line between retail and online shopping is blurring.

Some 80% of shoppers will research products online before buying, according to a study from Google. The Pew Research Center Internet &American Life Project finds that one in four adults use their mobile device to check online prices for items found in retail stores. And there is a continuing trend of “showrooming” – where shoppers view products in stores and then purchase the same item online from a different merchant. Increasingly, physical and digital merchants must compete for the same consumer dollars. This year, some retailers are using a price matching strategy to compete with online merchants, further erasing the lines between physical and digital shopping.

In the quest for the best holiday bargain, consumers are also shopping earlier in the year. The start of the annual shopping blitz has historically waited until after Thanksgiving, on Black Friday and Cyber Monday. A record 226 million shoppers made purchases on Black Friday last year, but there are a growing number of consumers who will begin shopping on Thanksgiving or before. This is leading retailers, malls, and other sellers to begin holiday sales and extend store hours earlier than in years past.

Online sales are starting earlier as well. Research from a couponing website RetailMeNot finds that just 15% of online shoppers wait for the major online shopping day after Thanksgiving to begin gift hunting. RetailMeNot reports that nearly one third of online consumers complete their holiday shopping by the time Cyber Monday and Black Friday arrive. One reason is because shoppers say they save more on purchases on Thanksgiving rather than on Cyber Monday.

"The reality is that holiday shopping is officially in full swing,” says Jill Balis, senior vice president at WhaleShark Media, which operates RetailMeNot.com. “The chances that deal-seeking shoppers will be contained to one weekend in late November is likely a thing of the past."

About 73% of consumers expect to find a deal this holiday season, according to Strategy+Business Magazine. The businesses that capture a portion of the billions of dollars in holiday sales will be those that cater to consumer demand for value and bargains. Facing a sluggish American economic recovery, this is true not only for sales during the holidays but for commerce generally going forward.

“Consumer confidence continues to trend below an ideal range,” Pam Goodfellow, Consumer Insights Director for BIGinsight, writes in Forbes. “This persistent drought of positive economic news over the past several years has changed consumers’ approach to spending. Are frugal consumers the ‘new normal’? If the economy continues at this lackluster pace, you betcha.”

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