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3.6%-5.2% Increase Seen

There's Optimism Amid Uncertainty in Wider-Than-Usual NRF Holiday Forecast

Citing uncertainties in a “historic” year marked by the COVID-19 pandemic, an “emotional” election period and social unrest, National Retail Federation CEO Matthew Shay forecast a rosy 3.6%-5.2% year-on-year holiday sales season lift to $755.3 billion-$766.7 billion, on a Monday call. Retail had “robust consumption” over the past six months, Shay said, and consumers are “excited about the holidays.” Sales for the Nov. 1-Dec. 31 period last year grew 4% to $729.1 billion.

The forecast came a month later than usual, with a broader swing than in years past, “to capture the uncertainty that we’re seeing within the economy,” said NRF Chief Economist Jack Kleinhenz. He cited a “high probability” that holiday season sales will fall in the forecast range, though the final tally for November-December sales could exceed or fall short of that, he said: “I can’t think of a period with so many simultaneous factors hitting the economy at once.” Retail sales were up 10.6% year on year in October, driven in part by early holiday shopping, said NRF. For the first 10 months, retail sales were up 6.4% versus the first 10 months of 2019.

NRF sees a 20%-30% increase in online and other non-store sales -- included in total sales -- to $202.5 billion-$218.4 billion, up from $168.7 billion last year. COVID-19 pandemic lessons will be “sustainable,” said Shay. “You have to continue to plan for uncertainty in the supply chain.” The big takeaway will be that “the pace of change will simply be accelerated as a result of this,” he said. New partnerships will emerge, physical locations will be used in “transformative ways” and digital fulfillment will grow.

On what it sees for stores, Kleinhenz referenced shopping shifts in clothing and electronics with sales made online but picked up in store. Many retailers are "fulfilling orders from either their store or from their warehouse and still at times keeping their stores open.”

Psychology played into the optimistic forecast. Kleinhenz referred to a consumer sentiment "that we owe it to ourselves, to our families, to have a … better than normal holiday season." Consumers have saved funds from stimulus payments and from spending less on travel, dining and entertainment; COVID-19 restrictions left “more dollars in the wallet to go further," he said. Consumer mood has also gotten a lift from equity and housing market gains. Lower energy costs factored in, too.

Disposable personal income available for spending grew 6.9% year on year in September, some $800 billion larger than in March. NRF expects Q4 disposable personal income to be around 5%. The trade group expects momentum from a strong Q3 to carry into Q4, fueled by retail promotions, resulting in a “strong finish,” said Shay.

Potential headwinds include expiring unemployment benefits and the lack of more stimulus relief. Millions of Americans "continue to need support,” said Shay. The administration and congressional leaders should “come together to provide that support.” Despite the positive holiday sales outlook, “not every sector of the economy has recovered,” nor have all retail businesses, he said. Stimulus checks and unemployment bonus checks “provided a real lifeline for American families and for workers. We think there’s more that needs to be done.”

Shay took a wait-and-see attitude on whether the trend of stores being closed on Thanksgiving this year will be permanent. Consumers will drive that decision in coming years, he said. “If consumers embrace this, then we’ll see it continue.” If in a year or two, after a COVID-19 vaccine is available, consumers may want those shopping interactions again. “It will be in response to what the market signals.” Black Friday evolved from just being a deals event to being a “social event,” Shay said, “born of the recovery from the recession when consumers were incredibly value-driven.” If consumers want that kind of social opportunity again, “you’ll see retailers continue to adjust their calendars to meet that need.”

A canvass of retail executives shows recovery in the supply chain after extreme constraints earlier in the year, said Shay. “They’re not chasing inventory in too many categories at the moment,” he said. There are limits on some products, particularly promotional products, where there’s “a little more integrity in the pricing.” Retailers won’t have “unlimited” numbers of deals “and they’re probably not going to be discounting them to move them.” He credited retailers and their partners with a “masterful job” of navigating the early months of the pandemic.