Retailers’ holiday promotions and a shift in consumer buying habits generates heavy demand for Monday deliveries by FedEx.
Two studies predict overall retail sales will grow more slowly this year than last, but that web shopping will grow sharply. However, like their store brethren, web merchants will have to offer lots of promotions this year, the forecasters say.
Two recent projections of 2007 holiday sales tell much the same story: overall retail sales will grow more slowly than last year, but online growth will be strong. The bad news for e-retailers is that stores will be wooing consumers with lots of sales, and web merchants will have to do the same.
Accounting firm Ernst & Young LLP predicts retail sales will grow 4.5% this holiday season, including January, down from 4.9% last year, while Internet sales increase by 15-20%. A big reason Ernst & Young includes January in its projection is the growing role of gift cards in holiday shopping. The firm projects gift card sales will reach $35 billion this year, up 25% from last year, and notes that 56% of gift cards are redeemed within a month. Retailers only recognize gift card revenue when the value is redeemed, which is why January must be included to show the impact of gift cards.
In a separate study, consulting firm Clear Thinking Group projects retail sales to be up 2-2.5% in the six weeks leading to Christmas, compared with 4.6% growth last year. When January is added in, the firm projects growth of 3% this year, versus 3.8% last year.
Both studies suggest higher gasoline prices and lower home values will curtail consumer spending. And they both suggest that retailers will offer lots of promotions to get consumers to shop, online and off.
“Those trends will carry over to consumer shopping trends on the Internet,” says Dan Valerio, Americas retail and wholesale sector leader at Ernst & Young. “Electronics and anything home-based are going to be challenged to be very promotional this season to drive traffic.” The luxury sector will be less affected by price-cutting, he says, although that sector could be impacted as fewer “aspirational” middle-income shoppers buy high-priced goods.
A third study by consulting firm TNS Retail Forward found that consumers on average plan to spend $636 on holiday gifts last year, down from $668 in a similar ShopperScape survey in October 2006. The belt-tightening was most evident among consumers whose household income was below $22,500, as they planned to spend $296, down 24% from last year. Consumers with incomes in the $22,500-$84,999 range said they were budgeting $594, up 5%, and those with incomes over $85,000 planned to spend $943, down 6%.
The survey also found that 37% of primary shoppers had begun their holiday buying by October, while 20% will begin this month before Thanksgiving weekend, 25% will begin Thanksgiving weekend and 17% will wait until December.
39% of consumers surveyed said they plan to shop online this year. While 41% indicated plans to shop via the web in the same survey last year, the results are not comparable because the survey included a “don’t know” response this year, and 19% of respondents selected that option. “Percentages for online and the other channels for 2007 are slightly lower than what they would be if we had ‘forced’ a response,” says Mandy Putnam, vice president of TNS Retail Forward. “Bottom line is that we wouldn’t expect a decline in online shopping.”
The ShopperScape survey of 4,000 primary household shoppers was conducted online in the last week of October.