Partner & Managing Director, New York
Late September. The weather cools down and the sun starts setting earlier. Pumpkin spice makes its deeply debated foray back into coffee shops. And the retail world starts thinking about holidays sales. Every September, we take a close, analytical look at sales trends over multiple decades and publish our sales projections for the busiest season of the year. This time, our propriety statistical methodology forecasts that holiday retail sales will increase between 3.1% and 4.1% year-over-year, compared to the huge surge of 6.1% back in 2017.
Setting the stage
A cursory review of prevailing macroeconomic data would lead many to anticipate a gangbusters year. Jobs1, wages2, and consumer confidence3 are at all-time highs. Most major retailers that recently published quarterly results have reported unprecedented growth in sales and traffic4, and some are calling this the best consumer environment they have ever seen5.
But as any behavioral economist will tell you, people don't react to nominal values. They react instead to changes in value. And looking at the data tells us that while we may be at all-time highs on several fronts, the rate of change is significantly less than last year. While job and consumer confidence growth may have the steady, healthy beat of a snare drum, they are drowned out by the cymbal crash of last fall.
The overture plays
Our proprietary holiday forecast methodology is based on the premise that year-to-date retail sales data through the end of back-to-school season has historically proven to be an accurate gauge of what U.S. consumers will spend during the holiday season. Excluding a year ago, over the past eight years, sales through August have accounted for 66.1% to 66.4% of retail sales annually, and holiday sales have accounted for 16.8% to 17% of annual sales.
Our statistical analysis tells us that the 6.1% growth during the 2017 holiday season was an anomaly. While comparing our forecast mid-point of 3.6% growth over last year to the year-to-date growth of 4.9% may sound like we are singing a different tune, in fact the sound we hear is simply a reversion to the mean. Last year's holiday sales represented a 17.1% share of the overall year – a contribution this big has not been seen since 2005 and it is one that we do not statistically expect to repeat soon. And while the growth rate is less than last year, our forecast also represents a nearly 10% increase from 2016, a very strong two-year change.
A tough act to follow
As we kick off the holiday season, we maintain a sense of cautious optimism. This is optimism based on a strong economy, healthy consumer spending, and recent solid results from those retailers that have been executing at a high level against a differentiated and relevant strategy. But we do want to caution against simply anticipating a repeat of last year's unexpectedly stellar numbers. Retailers across the board need to conduct regular bottoms-up analysis to determine the real strength of their business. Here are three main things to keep in mind:
It might not quite be encore, but there is no reason to believe that the 2018 holiday season will not be music to the smart, prepared retailer's ears.
For our complete data pack of retailer and macroeconomic data including many of the key economic indicators discussed above, please contact email@example.com.