Holiday sales have been viewed as a disappointment so far, but some optimists think the reality is quite a bit different.
The argument is by now familiar. Growth in online sales and a rise in gift certificate-giving have rendered traditional measures of consumer spending incomplete. Bulls say the government's own retail sales numbers, which try to include online commerce, are showing their best growth rate in more than a decade.
On a year-over-year basis, and excluding volatile auto sales, retail sales grew 8.6% in November, according to the Census Bureau. That represents the strongest year-over-year growth in November by that measure recorded by the government since it started using its current statistical method in 1992.
"Conventional chain-store sales estimates fail to account for the billions of dollars spent in direct-to-consumer channels, like
and other non-store channels," said Richard Hastings, chief retail analyst with Bernard Sands LLC.
When the government released its retail sales number for November earlier this month, the financial press focused on the tepid but expected 0.1% increase for the month, compared to October. Excluding autos, sales were up 0.5% from the month before, beating Wall Street's estimate calling for a 0.3% jump.
Both month-to-month readings were viewed as healthy but not showing a strong enough pickup going into the holiday season, especially in the wake of widespread sales disappointments reported by individual retailers the week before.
Based on sales target misses in November from a variety of retailers, including
, the International Council of Shopping Centers, or ICSC, lowered its estimates for the holiday season results to 2.5% to 3% from the previous 3% to 4% range. Analysts viewed the post-Thanksgiving shopping rush as weak, and companies ratcheted up promotional discounts for the month of December, hoping to close the gap.
This week, talk of continued sales disappointments trickled over the wire, as the consumer research firm, ShopperTrak, estimated that retail sales on the final Saturday before Christmas were $6.7 billion, down 7% from the same Saturday last year. Also, Wal-Mart stuck with its reduced forecast for same-store sales up 1% to 3% in December.
However, monthly same-store sales results from companies tracked by ICSC exclude online sales, as do data reported by ShopperTrak. Meanwhile, nonstore retail, which includes e-commerce and catalogue sales, was one of the strongest categories in the government's sales results for November, up 12.9% compared to the same month last year.
Craig Johnson, president of Customer Growth Partners, said the government's strong year-over-year results paint a more accurate picture of shopping strength, which is actually quite strong.
"The biggest constraint to even stronger growth this year is neither lack of consumer demand, nor a lack of 'must-have' items, but of physical shopping and transaction infrastructure," wrote Johnson in a research note out Monday.
His consulting firm has documented widespread congestion from shopping center visits from Connecticut to Arizona, marked by long lines at registers and traffic backups in parking lots and adjacent highway exit ramps.
The crowds may be increasing the popularity of online shopping this season. On Monday, industry watchdogs all but confirmed that Web shopping is enjoying a banner holiday. ComScore Networks said online sales "dramatically accelerated" in the five-day period ending last Friday. Consumers spent $2.03 billion during the span, marking an increase of 49% vs. the corresponding period last year.
"This year, more than ever before, we are seeing that online spending is really becoming mainstream," said Graham Mudd, a spokesman with comScore. "It really isn't an early-adopter medium anymore. A pretty sizable percentage of the population buys online now. This is the continuation of a trend that we've been observing for years now, and we expect it to continue."
ComScore expects online, nontravel spending will exceed $15 billion for November and December combined and post an increase of 23% to 26% compared with last year's holiday season. Quarterly cyber-spending will cross the $20 billion threshold for the first time, in the fourth quarter of 2004.
Elsewhere, Nielsen/NetRatings' Holiday eSpending Report, a collaboration with Goldman Sachs and Harris Interactive, said Monday that online shoppers in the U.S. spent $16.7 billion during the first six weeks of the 2004 holiday season, up 28% from the $13 billion spent during the time last year.
Online shoppers were buying such things as music, movies, jewelry, books, toys and video games with one mouse-click rather than braving the holiday crowds, and their purchases had no effect on some widely reported, lackluster sales results.
Meanwhile, a jump in gift cards this year is also believed to be muddying the sales picture. When shoppers purchase a gift card, it goes into the books as a liability for the store until after the holiday, when the gift-recipient redeems the card and the sale is recorded. So a chunk of holiday sales will go unrecorded until after the holidays have come and gone. Wally Brewster, senior vice president with General Growth Properties, which operates 220 malls across the country, estimated that gift-card sales are up between 25% and 40% this season.
"They're definitely a hot commodity this year," Brewster said.
Gift cards made up 8% of total holiday expenditures last year, according to the National Retail Federation. Mike Niemera, chief economist with the ICSC, expects that figure to grow to 12% this year. He also said online and catalog sales should make up about 11% of the spending pie, marking a sharp increase from last year, and services account for roughly 12%, also not captured in chain-store sales data.
"There's definitely a shift going on here, and these factors are taking on a larger role in the overall picture," Niemera said. But he cautioned investors about expecting a large sales boost when the total spending picture is ultimately pieced together. "We're expecting the overall season to be OK, not great, and the main weakness in sales comes from all the discounting, which is a result of weaker demand than expected. That's not a statistical problem."