U.S. Retailers forecast a 2.5% increase in Holiday comps

Underwhelming fall sales and continued economic and Federal budgetary concerns have U.S. retailers in a “wait and see” mode this holiday season. According to a recent BDO USA survey, chief marketing officers (CMOs) at leading U.S. retailers forecast a modest 2.5 percent increase in 2013 holiday comparable store sales. Last year, CMOs had a more optimistic projection of a 3.7 percent increase in holiday same store sales. This year’s conservative projection may reflect retailers’ concerns over the government shutdown, which occurred while the survey was fielded, and its impact on consumer confidence and spending this holiday season.

Following the release of new iPads as well as other tablets and phones, it’s no surprise that most retail CMOs again expect consumer electronics will be both the top performing (69 percent) and most discounted (58 percent) category this holiday season. According to the Consumer Electronics Association, electronics sales are projected to increase four percent this holiday season, and Wal-Mart reports that tablets already account for four out of its top five items in layaway. This marks a continued shift in consumer preference from traditional toys to modern consumer electronics as holiday gifts. The number of retailers expecting consumer electronics to be the hottest category has increased from 24 percent to 69 percent from 2009 to 2013, while those citing toys have decreased from 39 percent to three percent over the same period.

“We’re seeing retailers enter the holiday season with realistic, rather than optimistic, expectations,” said Doug Hart, partner in the Retail and Consumer Product Practice at BDO USA, LLP. “Consumer confidence took a hit this summer amid slow economic growth and Federal budget challenges, and it is still uncertain at best. However, we expect to see a heavy promotional environment, which should help consumers warm up to spending this holiday season.”

These findings are from the most recent edition of the BDO Retail Compass Survey of CMOs,which examined the opinions of 100 chief marketing officers at leading retailers located throughout the country. The retailers in the study were among the largest in the country, including 11 retailers in the top 100 based on annual sales revenue. The telephone survey was conducted in September and October of 2013.

Additional findings of the 2013 BDO Retail Compass Survey of CMOs include:

Total Store Sales to Increase 3.8 Percent. Retailers also have slightly lower expectations for total sales. Overall, CMOs forecast a 3.8 percent increase in total holiday store sales, down from an expected 4.7 percent increase in 2012. The 2013 projection is consistent with the National Retail Federation’s forecast of a 3.9 percent increase in holiday sales. Still, a majority (58 percent) expects sales to increase this year, and just six percent forecast a sales decrease. This may be linked to ongoing promotional activity and an earlier start to the holiday shopping season—particularly this year, with Hanukkah coinciding with Thanksgiving.

Gift Card Sales Will be a Bright Spot. Gift cards continue to be a very popular option for busy shoppers and discerning family and friends on holiday shopping lists. Among surveyed retailers who sell gift cards, 61 percent expect gift card sales to increase this season, marking a significant rise since 2009, when just 32 percent of CMOs projected an increase. Overall, retailers forecast a 6.9 percent increase in gift card sales, which could provide a boost to sales in January and February as consumers begin redeeming. Retailers may also look to incentivize early season and Thanksgiving weekend shoppers to return later by offering gift cards as a bonus offer for big ticket items like electronics.

Inventory Levels Remain Steady Amid Continued Caution. When it comes to products on the shelves, consumers can expect similar levels of availability. Most retailers (64 percent) report that they have kept their inventory levels consistent with last year, a sign that they expect similar demand levels this holiday season. Retail CMOs report a 0.9 percent increase in overall holiday inventory levels, which is consistent with their 2012 increase. With the economy and consumer confidence still tenuous, retailers remain wary of oversupply, which could lead to slashed prices at the end of the season to move merchandise.

Unemployment Still Top Threat to Holiday Sales. When asked which issue presents the biggest risk to holiday sales, a plurality of retailers (47 percent) point to unemployment. It’s no surprise that the high rates of long-term unemployment and underemployment continue to challenge consumers and concern retailers, but a number of other issues could also stymie spending. While fewer retailers point to energy and fuel costs (13 percent vs. 25 percent in 2012), the amount of retailers citing the housing market as the top threat doubled (16 percent vs. eight percent in 2012). And given payroll tax increases and ongoing political budget debates, six percent of retailers cite tax changes as the greatest risk to holiday sales.