NMSU researcher forecasts a brighter holiday shopping season

October 25, 2012 by Janet Perez, NMSU News Center

Christmas is expected to be extra merry for retailers in New Mexico this holiday season, according to one New Mexico State University researcher.

Bruce Huhmann, an associate professor of marketing at NMSU, predicts that holiday sales this year in New Mexico will increase by 4.4 percent over 2011. Nationally, Huhmann forecasts an increase in fourth quarter sales of 5 percent compared to the same quarter last year.

“Holiday sales are very important to retailers,” Huhmann said. “More than one-fourth of all retail sales occur during October, November and December. For certain retailers, holiday sales during these three months represent 40 percent or more of annual sales. The long weekend after Thanksgiving alone typically rings up 9 percent to 10 percent of annual retail sales. Holiday sales also produce one-third of retail industry profits.”

Huhmann’s national holiday sales predictions are more optimistic than those of other forecasters. For example, Shoppertrak predicts a 3.3 percent increase in November and December sales; Kantar Retail Group projects a 2.5 percent increase in same-store sales growth for November and December; and Deloitte’s Retail Group predicts a 3.5 percent to 4 percent boost to holiday retail sales, excluding motor vehicle and gasoline, for the November through January period.

One major factor fueling the expected increase in holiday shopping is the fact that the holiday shopping season beginning on the day after Thanksgiving and ending on Christmas Eve is a lengthy 32 days this year. Other factors feeding into this anticipated growth, according to Huhmann, include slowly rising employment, consumers’ perceived wealth, and rising optimism and consumer confidence.

While employment in New Mexico dropped 1.7 percent year-over-year in August, New Mexico’s unemployment rate is still below that of the national average — 6.5 percent versus 7.8 percent.

“Thus, employment trends are largely supportive to increased holiday retail sales,” Huhmann said.

Consumers in general also are feeling better about their personal wealth, which plays into the so-called wealth effect.

“The wealth effect is the observation that consumer spending rises or falls in tandem with changes in perceived wealth, such as the value of one’s investments in stock or housing,” Huhmann said.

The stock market in 2012 is considerably stronger than it was in the fall of 2008 when the economy cratered. Additionally, after years of declining home values, the bottom finally may have been reached, with recent surveys showing that prices have been flattening.

“Increased stock market prices in 2012 will impact the perceived wealth of consumers looking at their retirement savings and/or investments,” Huhmann said. “Unless the stock market declines, holiday spending, especially at luxury retailers, should be strong.”

There already are early signs that consumers are beginning to open their wallets wider. During the worst of the Great Recession, consumers were working to pay down credit card debt rather than adding to it. However, according to the Federal Reserve’s G 19 Consumer Credit report, credit card debt stood at $854.9 billion in August 2012, up from $847.7 billion in the third quarter of 2011. Credit for purchases such as cars also increased.

Stronger back-to-school sales this year also indicate shoppers are starting to shake off the recession blues, which bodes well for holiday spending, Huhmann said. However, Huhmann cautions retailers that consumers are still clinging to the recession-era habit of waiting for the best deals.

“Consumers continue to wait for deals and are willing to postpone shopping until merchandise is marked down,” Huhmann said. “This behavior is likely to continue this holiday season.”

This newfound willingness to start spending again can be attributed to consumers’ taking a more clear-eyed assessment of the economy.

“My research shows that consumer psychology is much more resilient to an economic shock now than this time last year,” Huhmann said. “Most potential shocks have been known for almost a year, so shoppers will not be as actively worried about dangers to the economy.”

Huhmann said consumers appear to be less worried about Congress and the White House not reaching a last-minute deal on the deficit or about the Euro-zone than they were last year. Huhmann added that while the outcome of the presidential election may have an impact on retail sales, growth will remain positive.

“The euphoria, at least among the winning side, following a presidential election tends to boost consumer confidence,” he said. “An Obama win would also provide certainty and continuity of policy, which would benefit hiring and business planning. Thus, should Obama win re-election, I would boost my national retail forecast by a quarter to half a percent. An Obama win would also boost my New Mexico retail sales forecast by almost half a percent.

“Alternatively, a Romney win could introduce uncertainty, which could slightly weaken retail sales,” Huhmann continued. “For example, public employees might become more concerned about losing their jobs and spending cuts. Also, those with pre-existing medical conditions who now can afford health insurance may worry about the repeal of Obamacare. Thus, a Romney win would reduce my holiday retail sales forecast by half a percent nationally and three-quarters of a percent in New Mexico.”

On the whole, consumers around the country appear to be in a much happier frame of mind. The Conference Board Consumer Confidence Index stood at 70.3 in September compared to 45.4 at the same time last year. The Present Situation Index rose to 50.2 in September from 32.5 in September 2011. The Expectations Index — how consumers view the near future — now stands at 83.7, compared to 54.0 in September 2011.

Perhaps an even stronger barometer of growing consumer confidence is that more Americans are buying homes. According to the Census Bureau and the Department of Housing and Urban Development, Americans purchased 373,000 new single-family homes in August, compared to August 2011 sales of 292,000 — a 27.7 percent increase.

The future is looking a little brighter to consumers, but Huhmann again warned retailers that pre-Great Recession shopping habits have changed dramatically.

“Today’s shoppers are more value-focused and more likely to comparison shop online or in-store via their cell phone,” Huhmann said. “However, value is not solely about price, but a balance between price and benefits. Also, expect consumers to reduce their shopping trips, with a greater proportion of trips to discounters, retailers holding promotional sales, or offerings of higher quality merchandise at a ‘reasonable’ price.”

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