September Comp Store Sales Growth Slows – Is This a Harbinger of a Slow Holiday Season?
Comp store sales growth slowed to 0.8% for September after a strong July (up 4.3%) and solid August (up 3.6%). Retailers are naturally wondering whether this portends slowing growth for the holiday season.
In August, “consumers came out and spent more than they themselves anticipated, and September was really a month for taking stock,” said Joel Bines, managing director at the consulting firm AlixPartners. “The excitement bled out as the month went along — the first week was still strong and then the momentum started to dwindle.”
But Mr. Bines does not believe a slow September necessarily translates into a slow holiday season. He has studied the relationship between back-to-school shopping and holiday results for the last 10 years, and said, “we haven’t been able to find anything that we would be willing to say is conclusive.”
What is the prediction for holiday sales? NRF recently forecasted a comp sales increase of 4.1% for the 2012 holiday season. In addition, experts are calling for an additional 700,000 temporary seasonal jobs, a slight uptick from holiday hiring last year. Is this aggressive, given the September results?
Let’s start by looking at what happened in the second half of last year and compare to what we’ve seen so far:
(Source: Thomson Reuters )
Based on these results, a prediction of 4.1% growth for the 2012 holiday season would seem aggressive. After slower growth in August and September of 2012 than in these same months in 2011, why would we think that 2012 holiday season growth would outpace that of 2011?
One possibility is that consumers may have held back in September, unsure of the direction the economy will take after the election. If this is the case, once this uncertainty is removed, perhaps this money will get spent in late November and December. "September is a transition month with back-to-school over and the holiday shopping not yet begun," said Nancy Liu, retail strategist at Kurt Salmon. "This means sales can be tempered, especially with the uncertainty the election throws into the mix."
Ultimately, as Mr. Bines has found, it is nearly impossible to build a forecast for an upcoming holiday season based on historical trends, or even based on results from the last two months. No one really knows. Except the consumer, of course, whose decisions over the next three months will make or break this holiday season.
In the same way, using historical data to predict the new products consumers want, and what they will pay for them, is of limited value. Many retailers look at purchase patterns on products from last year or last season, and use this data to make product assortment and pricing decisions for next season.
The challenge here is two-fold. First, consumer preferences often change from year to year or season to season. In a recent project we did for USA TODAY, we found that heavily distressed jeans and boat shoes, two hot trends from just a year or two ago, are now “out” for Millennials, giving way to skinny jeans and mid-top athletic shoes. Now the question is: when will these trends end?
Second, the value that the consumer places on products changes with the state of the economy. A set of consumers who may have felt confident during good economic times, valuing higher-end products at higher price points, may shift their purchase behaviors to lower end products during slower economic times.
The only way to know what consumers will do is to build a proactive, forward- looking, systematic approach to determining the products they value and the price points they are willing to pay. For each season, getting the assortment and initial ticket prices right from the beginning is critical.
“Once a product is on store shelves, it’s too late to change much about it, at least until the current inventory has been sold,” stated Gartner, Inc., the world’s largest industry analysis and advisory firm, when discussing First Insight’s solution in its “2012 Retail Handbook for Becoming Demand-Driven”.
At First Insight, every day we work with retailers and brands that are using this type of systematic approach. As they consumer-test their new products, they are empowered to make product selections and set prices using real-time consumer data. They are also building a database of consumer preferences and how they change over time, so they can see when certain attributes are trending up, or begin trending down.
To see how we help retailers with this process, take 15 minutes to watch our recorded webinar on how winning retailers stay ahead of the pack: Webinar - 20/80 Insight on How To Select Winning Products