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Diplomacy in Action

2013 Holiday Retail and Consumer Trends


Kathy Grannis, Senior Director for Media Relations, National Retail Federation
New York, NY
December 17, 2012




10:00 A.M. EST

VIA TELECONFERENCE

MODERATOR: Good morning everybody, and thanks for joining us for this call with the National Retail Federation. We’re joined by Kathy Grannis who is the Senior Director for Media Relations with the NRF, and she’ll be giving you an overview of retail industry trends in the most important shopping season of the year for U.S. retailers and consumers.

I’ve given you some background on the National Retail Federation, and our time is short this morning, so I’ll keep this introduction short. Just a few notes on format: Kathy will give some opening remarks, and then we’ll open the lines for questions. I’ll turn it over the Kathy now.

MS. GRANNIS: Thanks, Ariel. Good morning, everyone. I certainly hope that you have at least put a dent in your shopping list at this point. There’s really not much time, and I think what we know from retailers and what we’re hearing from consumers, there really should be a last-minute rush this week and going into the big day next week, so good luck wrapping up your lists. And for those who haven’t even started, definitely a good time to start.

So I will go ahead and just get started with the overview of our holiday forecast. In October, we forecast holiday sales to rise 4.1 percent over last holiday season. That is a slightly lower growth rate than what we saw in 2011. Actual holiday sales in 2011 grew 5.6 percent. There are challenges that exist this year that weren’t really in place this time last year. And actually, we revised our holiday forecast upwards last year, starting conservatively and continuing to build upwards at the end of the season.

We’d hoped that there was room for growth this year when we looked at retail sales that the government released just the other day. But in discussion with our chief economist and looking at all the variables that still exist, which include consumer sentiment, the consumer spending, income growth, and let’s not forget the fiscal cliff, which I promise not to talk too much about, but it will be a part of this. Those variables are actually still keeping our forecast at 4.1 percent, and we don’t feel at this point that there’s any way or any reason to increase our expectations.

Overall, the one thing that we do see maybe impeding on consumers’ ability to spend a little bit more this year is that looming fiscal cliff. We’re of course looking for a resolution as soon as possible, and we know that in 2013, if something is not – if an agreement is not reached on this fiscal cliff, we know that consumers will be the first ones to cut back on spending. And not only will they cut back on spending, but the types of things that they buy will change dramatically as well.

This immediately impacts the retail industry. And of course, if you guys remember the 2008 holiday season at all, and 2009 as well, it was full of layoffs, negative news about consumer spending and consumer sentiment, and really just the beginning of the tailspin that we saw happen with the economy.

For those who aren’t familiar with the fiscal cliff, I don’t really have a – the economic definition, but I can tell you it’s something that our government is looking at right now in terms of a package of things that could expire at year’s end that would dramatically impact consumers’ spending, most importantly surrounding tax cuts and tax breaks so that an average family of four in 2013 could actually see money decrease from their paychecks because of these tax breaks that are set to expire. So I’m happy to answer more questions on that if you’d like in a little bit, but I’ll move on to my second point.

The average person this year is expected – says that they plan to spend about $750 on gifts, decorations, food, and so much more. The holiday season is really much more than just gifts; there’s a lot that goes along. I mean, think of the greeting cards and the wrapping paper and the bows and even the little pieces that you put throughout your house, little decoration pieces. Those are all a part of what we consider holiday spending.

That $750 is up slightly from the $740 that people spent last holiday season. So again, you can see that there is an increase but is a very conservative approach. We are seeing consumers wanting to take a conservative approach to their spending. Many people, especially those with families and children, recognize that they want to be frugal, they don’t have the desire to splurge anymore, they know that actually some items cost a little bit more this year. That’s just something we’ve been dealing with the last few years, and it’s really started to become a normal part of a family of a person’s thought process when it comes to shopping, especially when it comes to buying gifts.

Many of the surveys that we ask, ask one simple question, and that is: Is the state of the U.S. economy affecting your spending plans for Christmas? We had one for Halloween. I think we asked it for back-to-school. And each time, it’s upwards of 60-70 percent of people who say yes, the economy is still impacting my spending plan. So four or five years later, here we are, still talking about people feeling very impacted because of the economy.

We know that there are a variety of things that go into how the season will end up, but for us, the season just doesn’t end on December 25th. December 26th, 27th, 28th, and 29th, and even past New Year’s are all very important days. The week after Christmas has actually been said to account for as much as 10 to 15 percent of a retailer’s holiday sales. So if you look at the holiday season as eight weeks, or the full month of November and the full month of December, you can look at it in segments. Black Friday was very important. This week will be tremendously important for retailers as they try and get those procrastinators in their doors and shopping online with shipping deals. But that week after Christmas is also very important.

So we won’t really know how the holiday season fared or how consumers ended up spending and if what they said about spending $750 is actually true. We won’t know any of that until at least mid-January. That’s when we will have government data that shows how much sales grew in December, and we are able to tally up November and December sales that way and get a really good look at the increases we saw for the holiday season.

Of course, we’re very optimistic about this 4.1 percent. It should be said that our 4.1 percent expectation for holiday sales growth is one of the most optimistic forecasts we’ve released for the holiday season since the recession began. We’ve stayed down in the 1, 2, even 3 percent range the last few years in terms of our forecast. And we have a bunch of sectors that we comprise in terms of how we measure retail sales and I think a few of those sectors are going to just pull through a little bit better, and 4.1 percent will actually end up being one of the better results we’ve seen. Maybe not as big as last year, but certainly 4.1 percent for any retailer is no drop in the bucket.

I have a note here, maybe – I made for myself. Maybe I should try and compare it to 2011’s economic climate as best I could. I think in terms of comparing this holiday season to last holiday season, there is one thing that does stand out that’s much of the same, and that is the wrangling in Washington. In 2011, we were dealing with the debt ceiling here in the United States. Much of the same this year. It’s not so much of a debt ceiling, but it’s spending and it’s tax breaks and it’s tax cuts and even if you dig down deep into it, there’s questions about how much the government wants to spend on our defense policies anymore. And that may not really affect us, but it’s a very large discussion on how we should manage our expenditures as the United States.

Last holiday season there seemed to be more of an optimistic tone from consumers, from retailers. There didn’t seem to be this confusion. This was actually one of the hardest forecasts we had to put together. When we were putting it together in early October, we didn’t have a new president yet and it was still a very, very close race at that time. Of course, come November 6, we learned that the race wasn’t actually as close as we thought, and consumers were really going a different direction, and the news at that point had painted it as dead even. And I think at the end, it – the results were – the results showed a consumer that maybe not a lot of people were expecting.

So that uncertainty was playing a role in how retailers wanted to move forward with their expectations for the holiday season. They – we had to keep it – we had to keep a cautious tone. We knew that many Americans were looking at the presidential election as a way of securing their family budgets. And at the end of the day, these families could have shifted their spending expectations in the drop of a hat. We’re not seeing that. We’re not seeing people pull back or not spend or spend more. We’re right in the middle. We are where we thought we would be.

So we put out this forecast for 4.1 percent and we left room for growth, we left room for a decline, and as I mentioned a little earlier, this holiday season really does seem to show that consumers are confident but cautious. And that hasn’t changed, even since October.

I’ll real quickly go into Black Friday in just a minute. Just – I know it’s been done and over for a few weeks now, but I think it’s an important part to mention. And I’ll wrap up here with the comparisons. Last holiday season, Black Friday was bigger than ever. It basically set records, and we’d never seen that level of excitement. And this year it was much of the same. There were record levels of people out in line, waiting to get in stores, on Thanksgiving night. 28 percent of holiday shoppers say that they were at stores by midnight or shopping online by midnight on Thanksgiving. And that was up from about 24 percent last year. So it is something that we know shoppers love.

And not to digress too much. I think the point I’m trying to make is in this kind of economy with uncertainty around their paychecks, their home values – and for some, still, their jobs – these types of big weekends for consumers are very important, because they can knock out 75 percent of their shopping list and maybe even pick up a few things for themselves when the bargains are really good. In a good economy, we may not see that many people want to stand in line and brave the cold, or get up early on Black Friday and set the alarm. It’s just – they’re willing to sleep in for the extra 20 dollars that they’d save or the extra 40 dollars that they’d save. In some instances, it might actually end up being the extra $400 that they’d save, but still they’re willing to sleep in for it and spread out their spending differently instead of participating in the big rush.

So again, looking back at the 2011 holiday season, we did see record levels of shopping, but holiday sales far surpassed everyone’s expectations and came in around 5.6 percent. So this year, looking at 4.1 percent, still not terrible, but we do know that there were more people out over the entire Black Friday weekend looking for those bargains, and I think that does speak a little bit to the fact that we’re still dealing with a very conservative, budget-focused shopper. And it doesn’t seem like that’s going to change anytime soon. I mean, unemployment is still high and income growth is stagnant or slow, and those are two things that a consumer – an American without a job is an American that doesn’t spend, obviously.

So we really – we know that the discussions that are happening right now in Washington surrounding the fiscal cliff are critical in letting retailers in 2013 build initiatives that support job growth and support hiring in their stores and support hiring in their warehouses. And these talks, if you will, are making consumers anxious, and there is a chance that over the next two weeks the amount that they’ve spent will be plenty enough, they won’t want to look to spend any more. Last holiday season, we really didn’t see that. We saw people spending the entire – the whole way through, the whole way through December, even after Black Friday.

So I think it’s important to note that each year it really does – it does vary greatly. If anyone was around and covering retail in 2007, you know that was the year we started discussing the mortgage crisis. It may not have been the recession yet, but the mortgage crisis had happened, and that has a big toll on how people spend. So if the lesson is – the lesson for Washington at least from the National Retail Federation or the lesson to Washington is get these talks going and get them wrapped up and make it – figure out policies that support job growth and support innovation so that consumers can continue to spend. And there’s always the debate – is spending good, is spending bad – but we do know that spending helps power the economy. And this year, we’re looking at a consumer who may, may stop spending, but we’re not seeing that just yet, I think is maybe the big point there.

MODERATOR: Kathy, do you want to start taking questions?

MS. GRANNIS: Sure, if that’s what you recommend.

MODERATOR: I know you’re on a tight schedule.

MS. GRANNIS: Sure.

OPERATOR: Ladies and gentlemen, if you’d like to ask a question, please press * then 1 on your touchtone phone. You’ll hear a tone indicating you’ve been placed in queue, and you may remove yourself from queue at any time by pressing the # key. If you’re using a speakerphone, please pick up the handset before pressing the numbers. Once again, for questions or comments, it’s *1. And our first question will come from the line of Maho Kawachi. Please, go ahead.

QUESTION: Hi, good morning, Kathy. This is Maho Kawachi with Nikkei Newspaper.

MS. GRANNIS: Hi, very good to hear from you.

QUESTION: Hi, how are you? I have brief two questions. Right after the Black Friday when you have this teleconference, the tone of your information is much more rosier, something like much more excitement, we hear. And today, it’s a little bit much more cautious. So my first question is: Do you see any change among the consumer spending? That’s my first question.

And the second question is this year more than ever retailers are trying to entice the consumers, such as extending the operation hours and price discount and so forth. And so have you seen any specific trend which retailers are trying to excite consumers?

MS. GRANNIS: Very good questions, and you’re right; you were definitely listening when we were talking about the spending after Thanksgiving weekend. I think it’s important to note that spending over Thanksgiving weekend, though it was up over last year and we were very excited about the success of the weekend, retailers also know that Black Friday is only a piece, is a small piece of the pie. The bigger pie, the $586 billion we’re expecting in sales is actually going to be spread out over the entire holiday season.

So going into December after that big weekend, we’d heard from a few retailers that there were actually chances that their November sales were altered because of Super Storm Sandy. That did play a role in some department stores’ expectations for fourth quarter growth. So keeping that tone low because there was a balance that we had to strike – some retailers are saying they’re not going to see the best results, others are – and then when we saw the government results the other day, there is, unfortunately, no room for growth. We were hoping that there would be some kind of case study that would show us that people going into November actually spent more than we thought, more than we hoped, Black Friday was so good. But we didn’t see that in the numbers. We saw a mixed bag.

So we’re still optimistic, but again, if you look at the 4.1 percent expectation and last year’s actual holiday season growth of 5.6, I think you can see that there’s still a chance that this will be a great holiday season but maybe not as great as last year. I hope that helps some.

QUESTION: Okay.

MS. GRANNIS: And then I think this – in terms of what retailers are doing differently, there’s no question that online has played a much bigger role in the holiday season this year than it ever has before. We saw many retailers actually bring online into their stores. They were using and they still are using QR codes on their shelves that let people purchase items via their mobile device and have it shipped to them. They’re enhancing their wifi in their stores so people can browse the internet on their phone, and maybe while they’re on their phone browsing the internet, they’ll get an instant coupon from the retailer just for being in the store that says, “Use this for your next store purchase.” So there’s those promotions.

Layaway has been very big this year. The discounts retailers are using, of course, are pretty standard. We didn’t see any retailer trying to deeply discount in November like we did a few years ago, which would have showed that they – consumers had stopped spending and inventory was too high. We’re not at that level yet. But I think some of the most creative promotions we’ll actually start to see this week because it’s the final stretch. It could be last-minute shipping deals that some retailer pulls out of the bag that says “Order now, only $5 to expedite your gift.” Those types of shipping deals are usually pretty interesting this time of year, and I think we could see a few of those this week.

QUESTION: Okay. Thank you so much.

MS. GRANNIS: Sure.

OPERATOR: Thank you. And next we’ll go to the line of Matthew Hall. Please go ahead.

QUESTION: Hi, Kathy. I was wondering – you just mentioned online retail, but I’d like you to expand if possible about the impact of online retail for retailers. And do you differentiate between online and in-store? And do you see online as a bonus, or do retailers see online as a bonus or a threat to their way of doing business?

MS. GRANNIS: Great questions. There is no question that online is a very big, bright spot for the retail industry. It has grown leaps and bounds in just a few short years, and right now is actually being enhanced by the growth in mobile devices and tablets. Over Thanksgiving weekend alone, we heard from our retailers that the way that they were tracking their sales that weekend, they could literally see 30, 50, 60 percent growth in traffic and sales directly related to those using their tablets. So it’s a tremendous success for retailers who’ve been able to optimize and take advantage of these mobile websites letting people shop on their tablets and even their phones.

As far as our expectations and how online is going to play out, we are expecting online holiday sales to grow about 12 percent this year. And if you look at the other analysts and other experts who have their own expectations out, we’re in line with what they’re saying. I think Forrester might have a 14 percent forecast for the holiday season. But there needs to be – I shouldn’t – I’m sorry, I didn’t mean to say there needs to be. There will be, there will continue to be, a marrying of the store and internet process for retailers. And that will only boost their bottom line completely.

So as to does a retailer care if they shop online or in-store, no. They don’t care the method that their customers shop as long as they shop with them. So at the end of the day, if you’re using your tablet device to shop on neimanmarcus.com, great, but if you go to the store the next day, it’s another bonus for retailers. They don’t – they know that consumers don’t see channels; they see experiences. They just want a seamless shopping experience, and more and more, we will see retailers marrying all of their mobile and all of their online and all of their in-store promotions. I think we’re getting there right now, actually.

QUESTION: All right. Thank you.

OPERATOR: Thank you. And once again, if you have questions or comments, it’s *1. We’ll go to the line of Christina Horsten. Please go ahead.

QUESTION: Hi. My question is: What items are customers shopping? Like, what are their preferred gifts this year?

MS. GRANNIS: It’s – so when we put out that press release a few weeks ago, we were very surprised to see that gift-givers really want to spoil their loved ones this year. Discretionary gifts were way up. We’re talking jewelry, electronics, apparel all very high on gift-givers’ lists. And there have been years that those types of items shrunk because people were looking more for the practical gift options because of the economy. So I think this year, maybe having saved up or having refrained from buying these types of gifts for the last few years, jewelry, electronics, toys even, will be very popular with gift-buyers.

What’s most interesting this year, though, is the percent of people who say they will buy gift cards compared to those who say they would like gift cards. So at the beginning of the season, we asked people, “What gift would you like to receive?” Six in ten said they would like to receive a gift card. That’s the highest in the survey’s 10-year history. And really, it’s been the top requested gift item for about five years now, beating apparel and electronics and toys.

And in our gift card survey, we found that eight in 10 Americans say that they will actually buy gift cards. So it seems like it’s a win-win, that gift cards really are becoming the holiday season’s hottest gift, and I don't know if that will ever change. I think more people are looking at gift cards as practical and personal. They’re no longer just that impersonal gift that you shove in a card. I mean, you can dress them up with audio and video and personalize and put pictures on them, and I think it lets the gift recipient buy something that they may have held off on buying all year, and that’s become a very personal thing.

QUESTION: Thank you.

OPERATOR: Thank you. And at this time, there are no further questions coming from the phone line.

MODERATOR: Okay. While we’re waiting for other questioners to call in, I’m just going to throw one out to you, Kathy. We have a bunch of foreign journalists on the call and I think they might be interested in what impact foreign retailers are having on the U.S. retail industry this year.

MS. GRANNIS: Sure. So we unfortunately don’t have too much insight into the markets. I mean, we – obviously, we pay attention to the news and of the retailers we know – U.S. retailers we know still heading into international space, that seem – that trend does seem to be growing. But there have been a few foreign retailers that we know who have come into the U.S. space. One in particular – I can’t name names, but one in particular grocery chain has been struggling for years to really capture on a market that might have already been flooded. And it’s – I think it’s a matter of the constant change in consumer sentiment and research options that exist when you are an international retailer trying to come into any country, and especially the United States, with an unemployment rate still so high and so many variables that exist, I think what we’re hearing is it’s hard for foreign retailers to actually make their footprint these days. And I don’t think that will be – it’ll be like that forever. We’ve seen some great successes with some stores in New York. And I can say this, H&M and Topshop, those guys have really done a great job, obviously, but it really comes down to figuring out the right time and the right place. But for any retailer that’s difficult.

MODERATOR: Thanks, Kathy. I think we have another question on the line, Julia.

MS. GRANNIS: Okay.

OPERATOR: And we’ll have a question coming from the line of Chris Gisiger. Please go ahead.

QUESTION: Hello. Can you hear me?

MS. GRANNIS: I can, yes.

QUESTION: Okay. Hi. This is Chris. I have a question about watches. Do you have any kind of numbers or estimates, how the watch industry is doing so far in this retail season or in this holiday season?

MS. GRANNIS: We, unfortunately, don’t track specific products. Our questions are very broad, and we ask people what they plan to buy as gift items. Jewelry, which is where I believe watches would fall – jewelry was up this year in terms of the number of people who plan to buy jewelry. If you give me a second, I will find that percent.

QUESTION: Okay. Thanks.

MS. GRANNIS: But – let’s see. What type – so the question is: What type of gifts have you already bought this holiday season? And we just asked this. This would be the most recent. It looks like 21 percent of people said that they’ve already bought jewelry. And then if you look at – I mean, it could also go into clothing and accessories. 53 percent of people said that they’ve bought clothing or clothing accessories. But unfortunately, that’s as narrow as we get.

QUESTION: Okay. You said 53 percent, right?

MS. GRANNIS: Yes.

QUESTION: Okay. Thank you, ma’am. Thank you so much. That helps.

MS. GRANNIS: Sure. Thank you.

OPERATOR: Next we’ll go to the line of Louise With. Please go ahead.

QUESTION: Thank you. And thank you for your time. I really appreciate you doing this.

MS. GRANNIS: Sure.

QUESTION: I work for a newspaper in Denmark, so I talk to Danish manufacturers of consumer products, and they’re all saying that it’s actually going quite well for them, because it’s not so much about – I mean, the luxury just for luxury sake or spending just to spend, that’s gone, but people really want sort of products with real value, something that will really improve their lives. So I was wondering if you could expand. Is that your impression too, that consumers are sort of going for more quality stuff that will improve their lives, one way or the other?

And secondly, if there’s a deal on the fiscal cliff, how is that likely to affect spending and household optimism do you think?

MS. GRANNIS: Two very good questions. So we – it’s funny. The phrase “value” popped up about two – maybe two years ago for us here. We started noticing that people were shopping a lot less just for price. They were really starting to take advantage of layaway, which shows us that they wanted to spread out their spending and figure out ways to find the best way to manage their budgets. They were buying bundled packages of gift items, where they were making sure to take advantage of gifts that were also attached to a free gift card. They were buying higher quality jeans that may actually cost more. And of course, in this kind of economy, we weren’t expecting to see people spend more on denim or coats.

And then we started realizing that more people were also shopping at department stores than we’d seen in quite some – in a few years. And department stores do an excellent job providing that value. They have higher quality merchandise. They have products that will – may last a little longer. And they have those private labels that you really can’t – you can’t get the product anywhere else. And for shoppers today, value is still extremely important. A mother or a father with a family of four and children, growing children, know that if they spend just a little bit more on things that won’t break in six months, they are better off in the long run.

This is very different than luxury spending. There’s certainly a – we’ve seen a comeback in the affluent spending and luxury spending. But this value spending is really just people looking to buy that nice purse for their wife, because she needs a nice purse, and she’ll be able to use it to put her laptop in to go to work; she’ll be able to use it on date night. There’s so many different things that we see here. And personal and practical still are great when it comes to gift buying right now, but value is definitely high up there on the list.

I think your second question was about the fiscal cliff and what it means. If we – excuse me – should we reach a resolution sooner rather than later, what this means for retailers is there’s nothing outlined yet; there’s really nothing in paper that says retailers will do this or we won’t do this if it doesn’t happen. But speculation, of course, is – given the tax breaks that might expire and all of that, there’s certain items that would, for some retailers, that would hinder their ability to hire more people or expand into another state or look at other research and development options. I mean, this could even be expanding their e-commerce platform to now offer more – to put more budget towards their mobile budget.

And again, nothing is set. But we do know that consumer spending is 70 percent of the GDP and retail sales over the last few years have been a huge driver in this economic recovery. And if there is no resolution soon enough, the wheels will start moving, and retail will definitely be one of the industries most impacted.

QUESTION: Thank you.

OPERATOR: Thank you. And at this time, there are no further questions coming from the phone lines.

MODERATOR: Thanks, everybody. That’s all the time we have this morning. Want to thank you for joining the conference call and thank Kathy for taking time out of her busy schedule to speak with us. And before we go, I just want to remind you that Kathy’s comments represent the views of the National Retail Federation and do not reflect the views of the U.S. Government. Thanks, again.

MS. GRANNIS: Thank you, everyone.

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