Despite headwinds including supply chain challenges, labor shortages and inflation, National Retail Federation president Matthew Shay said in a press event introducing the NRF holiday forecast that “very, very strong” momentum based on consumer spending has the potential to shatter previous records in the November/December time frame.
NRF expects November and December retail sales, excluding automobile dealers, gasoline stations and restaurants, to grow between 8.5% and 10.5% over 2020 to between $843.4 billion and $859 billion. The anticipated growth compares with a previous high of 8.2% in 2020 to $777.3 billion and an average increase of 4.4% over the past five years.
Just days ago, NRF introduced its holiday gift forecast, which predicted spending of $997.73 on gifts, seasonal items and other non-gift purchases season, down slightly from 2020 but with experiences rather than merchandise responsible for the dip.
The forecast looks to online and other non-store sales advancing between 11% and 15% to a total of between $218.3 billion and $226.2 billion versus $196.7 billion in 2020, driven mostly by digital purchases.
Retailers will hire between 500,000 and 665,000 seasonal workers, NRF estimated. That compares with 486,000 seasonal hires in 2020. Some of the hirings may have been pulled into October as many retailers encouraged households to shop early and, so, avoid inventory challenges and shipping delays in the market based on supply chain troubles.
Weather can factor into holiday sales, NRF pointed out, and the National Oceanic and Atmospheric Administration is predicting a high likelihood of a La Niña pattern of cooler and wetter weather in the northern United States and warmer and drier weather in the southern tier. In the past, La Niña period correlated with stronger retail sales and could be a factor in 2021, NRF asserted.
NRF’s holiday forecast is based on economic modeling that considers a variety of indicators including employment, wages, consumer confidence, disposable income, consumer credit, previous retail sales and weather. NRF defines the holiday season as November 1 through December 31. The methodology used to calculate holiday retail employment in 2020 was changed to accommodate the sizable impact of COVID-19 on sector workforces. In 2021, NRF returned to a traditional employment buildup model, it stated.
NRF is confident that “consumer will continue to power the economy” through the year’s final quarter, Shay said. He also noted, “Consumers are in a very favorable position going into the last few months of the year as income is rising and household balance sheets have never been stronger. Retailers are making significant investments in their supply chains and spending heavily to ensure they have products on their shelves to meet this time of exceptional consumer demand.”
Last year saw extraordinary growth in digital channels as consumers turned to online shopping to meet their holiday needs in the pandemic, NRF asserted. Although e-commerce will remain important, evidence suggests households are shifting back to in-store shopping and a more traditional holiday shopping experience.
“The outlook for the holiday season looks very bright,” NRF chief economist Jack Kleinhenz said, in introducing the forecast. “The unusual and beneficial position we find ourselves in is that households have increased spending vigorously throughout most of 2021 and remain with plenty of holiday purchasing power. Pandemic-related supply chain disruptions have caused shortages of merchandise and most of this year’s inflationary pressure. With the prospect of consumers seeking to shop early, inventories may be pulled down sooner and shortages may develop in the later weeks of the shopping season. However, if retailers can keep merchandise on the shelves and merchandise arrives before Christmas, it could be a stellar holiday sales season.”
Kleinhenz said that the COVID-19 Delta variant spike seemed to pressure retail sales in the third quarter, it appears new COVID-19 infections and hospitalizations are down. Still, a variant surge could potentially sidetrack the current trajectory of spending. On the other hand, strong household fundamentals can fairly fuel optimism amid uncertainty. Income is growing from wage compensation, and household wealth has reached another record high, and such factors support an outlook for strong spending this holiday season.
