In just one month’s time, on November 28 this year, Americans Will gather together for their traditional Thanksgiving meal. Traditionally held on the final Thursday of the month, it is followed by what popularly has become known as Black Friday, the start of end-of-the-year shopping season.
With the American economy still cruising at rapid speed, forecasts for the 2019 season are generally positive. The National Retail Federation has said it expects holiday retail sales during November and December to increase between 3.8 percent and 4.2 percent over 2018 to a total of between $727.9 billion and $730.7 billion. The numbers, which exclude automobile dealers, gasoline stations and restaurants, compared with an average holiday sales increase of 3.7 percent over the previous five years.
“The U.S. economy is continuing to grow and consumer spending is still the primary engine behind that growth,” NRF President and CEO Matthew Shay said in an announcement released by the organization. “Nonetheless, there has clearly been a slowdown brought on by considerable uncertainty around issues including trade, interest rates, global risk factors and political rhetoric. Consumers are in good financial shape and retailers expect a strong holiday season. However, confidence could be eroded by continued deterioration of these and other variables.”
NRF expects online and other non-store sales, which are included in the total, to increase between 11 percent and 14 percent to between $162.6 billion and $166.9 billion, up from $146.5 billion last year.
EFFECT OF CHINESE TARIFFS ON RETAIL SALES
One of the elements that economists are looking hard at are the effect that import tariffs on Chinese goods will have on end of the year sales. Some 79 percent of consumers surveyed for NRF in September were concerned that tariffs will cause prices to rise, potentially affecting their approach to shopping.
The effect of tariffs on holiday spending — either directly or through consumer confidence — remains to be seen. Some holiday merchandise — including apparel, footwear and televisions — is subject to new tariffs that took effect September 1, and other products will have the tariffs applied on December 15.
According to the NRF, retailers are using a variety of mitigation tactics to limit the impact on consumers, and the impact will ultimately vary by company and product. Small businesses, in particular, have already been forced to raise prices.
“There are many moving parts and lots of distractions that make predictions difficult,” said NRF’ Chief Economist Jack Kleinhenz said. “There is significant economic unease, but current economic data and the recent momentum of the economy show that we can expect a much stronger holiday season than last year. Job growth and higher wages mean there’s more money in families’ pockets, so we see both the willingness and ability to spend this holiday season.”
The NRF’s economic model on which the forecast is based takes into consideration employment data, wages, consumer confidence, disposable income, consumer credit and previous retail sales. Many believe that it underestimates an increasingly important factor that is notoriously difficult to predict and that is the weather.
Weather is often the unknown factory when predicting holiday sales results. It has a significant impact on consumers’ emotions and that translates into retail sales.
THE UNDERESTIMATED INFLUENCE OF THE WEATHER
“Weather has a significant impact on our emotions and the way we feel which translates into retail sales,” said Paul Walsh, IBM’s global director of consumer weather and climate strategy, speaking to Forbes. “When it gets cold, it flips the switch into thinking about holiday shopping. When it is 90 degrees [Fahrenheit] in Atlanta in October, it doesn’t feel like it’s time to start buying things for winter.”
Walsh believes that the United State will experience an unseasonably warm October and November which will slow demand for winter and holiday season goods, which presumably does not include jewelry. It will be in direct contrast to 2018, when October and November were unseasonably cold. Since retailers traditionally use the previous year to model the next, retailers are likely to be overstocked in winter goods before consumers start shopping.
“Our rule of thumb is that a 1 percent increase in a demand forecast’s accuracy for a billion-dollar business can net out to about a $10 million benefit from improved in-stock positions and reduced mark downs,” Walsh says. “By adding weather into a demand forecast for seasonal product categories, we’ve seen companies increased forecast accuracy more than 20 percent.”