Economy Portends Big Holiday Sales

November 21, 2003
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GRAND RAPIDS — Ernst & Young’s Retail and Consumer Products Group expects retail holiday sales for November and December will increase 5.2 percent due to the economic rebound that began in the third quarter.

The holiday shopping outlook is brighter this year because of increases in disposable income, housing starts, low interest rates and federal income tax cuts, according to Ernst & Young (E&Y).

The firm predicts online sales will jump more than 25 percent during the holiday season, partly because retailers are getting more adept at selling their wares on the Web and partly because consumers are feeling more confident about Internet security and about conducting online transactions.

“Retailers now have better execution of online sizing, fits and returns,” said Dave Hoogendoorn, a partner in Ernst & Young’s West Michigan practice who specializes in retail and consumer products.

“Multi-channel retailing is expanding tremendously because the Internet is being used in combination with stores and catalogues, and consumers are becoming more accustomed to shopping with all three methods.”

E&Y anticipates the majority of consumers will continue to seek value for their dollar, so the warehouse clubs, discounters, mass merchandisers and dollar stores will likely fare well during the holidays.

Conversely, given recent gains in the stock market, along with federal income tax cuts, high-end consumers will be more inclined to buy luxury items and pricey clothing.

Not only will the season be greener cash-wise, it will be altogether more colorful, with clothing trending to pink, gold, silver, winter white and all shades of blue, red and purple.

“Fashion apparel is a big area that drives a lot of sales — holidays and non-holidays,” he said. “We started doing some trending on color and it’s interesting that the color purple outsells every other color when the economy is improving.”

Consumer electronics have been a top draw over the past couple of holiday seasons, but there are no hot new electronic gadgets on the market this year.

Hoogendoorn said DVD players are likely to be the most popular item in the consumer electronics category, and the good news is they’re expected to come down in price.

Digital cameras and flat screen TVs, too, are expected to be popular among holiday shoppers.

“Our research has not identified any ‘must haves’ in consumer electronics,” he noted. “But we’re watching very closely the promotional pricing on DVD players of all types and sizes as a leading indicator in the consumer electronic industry.”

In the toy category, dolls with “attitude” are likely to be hot sellers. Does that mean the sassier and brattier the better? Consumers will be the judge this holiday season.

In addition, the toy trend appears to have a nostalgic flavor.

Sharing the shelves with new toys this season will be some throwbacks to the 1980s — Cabbage Patch Kids, My Little Pony, Strawberry Shortcake, Teenage Mutant Ninja Turtles and Transformers.

“Even in the toy category, when you don’t have that ‘must have’ product that everybody’s fighting for, retailers need to come up with different versions of styles and products to draw attention to themselves. In this way we see these ‘classic’ toys beginning to show signs that they may be a popular item for the holiday season.”

It’s also an opportunity for retailers to re-push toys that entertained one generation onto a newer generation, he said.

Though the overall outlook is bright, E&Y cautions that the lingering cloud of a high unemployment rate could dampen consumer spending.

Statistically, when the local unemployment rate is above the national average, holiday sales tend to be below the national forecast, he said.

That same trend applies to refinances. When mortgage refinancing activity trends downward, holiday spending does, too.

“With a national unemployment rate of 6 percent, and, more importantly, deflationary trends in the major holiday merchandise categories —toys, apparel and consumer electronics — our projected increase of 5.2 percent still has a cloud hanging over it,” Hoogendoorn said.

With deflation, prices are lower so retailers need to boost unit sales to make up for the lower prices.

Since E&Y’s research hasn’t identified any “must haves” for the 2003 season, it raises a couple of key questions, he said.

“Is there enough pent-up demand from 2002 to increase those unit sales? And will the consumer use the deflation dollars to their advantage to purchase additional merchandise?

“If consumers fill their holiday wish list and deflation allows them to save $200, will they just keep it in their wallets? That will be the key thing to watch as we go through the holiday season.”

E&Y’s holiday sales forecast is based on 12 years’ worth of data on stock market performance, consumer confidence and unemployment rates, as well as historical relationships between retailers and customers.          

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