Consumer Optimism to Lift Christmas Sales

If you’re one of those people who defines the start of the holiday season as the day Christmas decorations start showing up on store shelves, then you’re already aware that Christmas begins sometime in October. For many retailers, however, Christmas is an all-year consideration, something that is analyzed and planned for as the year’s single make-or-break event. And this year you can add in a presidential election, another worrisome variable, which statistically tends to be preceded by loose money as politicians seek to win favor, followed by a more sluggish year after the election is over. The ultimate effect of Super Storm Sandy is also uncertain. Cleanup should boost car and repair sales in the Northeast, though that is money that will not be spent on traditional Christmas items.

So what are CEO’s and consumers saying about Christmas this year? Recent numbers for housing prices, retail sales, and the jobs market have clearly helped buoy consumer confidence, with some reports suggesting the highest confidence level since the beginning of the recession. Housing prices are up for the fifth month in a row, with new homes sales hitting a 2-year high, giving at least homeowners a reason to feel better off. Retail sales have also increased over the past few months, and now many retailers are indicating that they will hire more seasonal workers than they did last year, roughly 600,000 new hires according to the National Retail Federation. More holiday hires means more consumer income and almost certainly more consumer spending.

It’s not just the U.S. that is seeing higher levels of consumer confidence. The UK has experienced modest gains in manufacturing, services, and retail, which has bumped employment, leading to increased optimism on the part of both consumers and businesses, even though employment gains have been largely in part time or temporary positions.

One telling statistic about anticipated consumer spending is the number of expected deliveries to be made before Christmas. UPS, for example, is expecting to handle 10% more deliveries than last year, over half a billion packages. Along with that goes the need for more seasonal workers, with UPS planning to hire approximately 55,000.

Timing, however, is another thing. When will retailers get their earliest clear sign that consumer confidence is translating into consumer dollars? As indicated above, the holidays have already begun, and every retailer wants to be first in line. With Amazon and other online threats, brick and mortar stores have to be especially aggressive. Amid understandable controversy, Walmart has already announced that they are moving their Black Friday sales to 8 pm on Thanksgiving Day. But consumers are getting savvy, and don’t always view Black Friday as the be-all end-all sales day that it once was. There’s an increased recognition that at least some of the electronics and other goods sold at discount on Black Friday can be of questionable quality, and may not be such a good deal in the long run. In addition, studies have shown that many items, including major purchase items, are priced lower at other times than Black Friday, such as the two week period right before Christmas. With the holidays stretching from October right up until Christmas Day, it may be hard for retailers to get an accurate measure until it’s all over.

Are executives as optimistic as consumers? Companies traditionally have a longer view than consumers, and are less impressed by trailing indicators. As a result, businesses, though hopeful, are considerably more conservative in their outlook. The numbers they look at suggest a more subdued picture, with capital investment by companies continuing to drop and earnings sluggish. They’ve got a lot more to worry about than Christmas 2012.

That being said, indications are that retailers are generally upbeat about holiday sales, as suggested by the anticipated holiday hiring. A quote in a recent NY Times article by Peter Reiner, Sr. VP for Marketing at Toys “R” Us, reflects the stated views of many retailers: “We’re very optimistic about the holiday.” If nothing else, it’s a clear recognition that consumer optimism always drives the Christmas train.

About MissionIR 

MissionIR is committed to connecting the investment community with companies that have great potential and a strong dedication to building shareholder value. We know our reputation is based on the integrity of our clients and go to great lengths to ensure the companies represented adhere to sound business practices.

Sign up for “The Mission Report” at www.MissionIR.com

Please see disclaimer on the MissionIR website http://www.missionir.com/disclaimer.html