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With the holiday shopping season shifting into high gear, Deloitte & Touche LLP expects a warming trend in consumer spending to drive modest retail sales growth. The firm's Consumer Business Practice anticipates a 3- to 4-percent increase during November and December in the important GAF sales figures, which track general merchandise, apparel and home furnishing sales. Last year, GAF sales rose 5.6 percent during the same period.
The firm's 17th annual survey was conducted against a backdrop of rebounding economic indicators, which are squaring off against low consumer confidence numbers. The poll of 13,000 U.S. residents between November 1 and 5, confirms consumers are feeling cautious: more than one-third (36 percent) of the survey respondents said they intend to spend less this year than last. Only 11 percent said they plan to spend more this year. The decrease in holiday budgets is further illustrated by the spread between those who plan to spend more and those who plan to spend less, which increased by 7 percentage points over last year.
When asked why they'll spend less, respondents cited concerns about the economy (39 percent), high personal debt (32 percent), and salary decreases (26 percent) as the three most important reasons. Thirteen percent of employed respondents said their jobs are "not very secure," compared to nine percent in 2000.
Consumer Intentions vs. Actions
"The big question for retailers is, as always, will consumers' intentions translate into action?," said Tara Weiner, managing partner of Deloitte & Touche's National Consumer Business Practice. "Despite waning consumer confidence, economic fundamentals indicate that Americans are in a good position to spend this holiday season.
"Thanks to mortgage refinancing, tax reductions and modest employment gains, consumers are sitting on a sizeable amount of cash," she said. At the same time, she cautioned that the possibility of conflicts in the Middle East or rising oil prices could derail consumer spending.
Irwin Cohen, managing partner of Deloitte & Touche's Global Consumer Business Practice, points to the recession of the early 1990s as evidence that consumers don't always act on their emotions: During the 1993 recovery, consumer spending rebounded months in advance of consumer confidence.
"It is clear that retailers need to focus more than ever on effective inventory management, cost controls and value-oriented pricing strategies to survive in this challenging environment," said Cohen. "With deflation in the mix, retailers should focus on unit transactions as well as sales dollars when gauging the success of this year's shopping season."
Emphasis on Value
In pursuit of better values, customer service, and convenience, survey respondents report they are diversifying the types of channels in which they shop. Discount department stores retained their first-place ranking as the channel in which consumers plan to spend the most money, cited by nearly two out of five (39 percent) as the channel in which respondents plan to spend the largest portion of their holiday budgets. However, the Internet and "dollar stores" are gaining popularity.
"Although discount department stores are still king, consumers apparently recognize the opportunity for value in other channels," said Weiner. "Dollar stores, for instance, have made a big improvement in the quality and consistency of their merchandise. This has increased their appeal, evidenced by one-fifth of respondents who cited dollar stores as a destination for gift and other holiday purchases."
The desire for better value is apparent across all income groups. Among households earning $75,000 or more annually, 13 percent reported they plan to shop at "dollar stores," and 29 percent will shop at off-price stores.
Overall, 61 percent of respondents said they plan to shop after December 25, perhaps in pursuit of better deals.
Service Reigns Supreme
Good customer service seems to be playing a significant role in determining where holiday shoppers spend their money. Using a scale of 1 to 10, 73 percent of respondents rated their Internet shopping experiences as an 8 or better, compared to 41 percent who rated in-store shopping as an 8 or better.
Internet retailers, both pure-play and online arms of brick-and-mortar stores, emerged this year as the second most popular channel, outpacing traditional department stores by 12 percentage points. Nearly half (49 percent) of the survey respondents said they will shop online.
"Web retailers have really improved their customer service in the last couple of years," said Weiner. "They continue to gain credibility as they have fine-tuned web navigation, credit card security, shipping methods and return policies and have increased brand recognition. For the Internet retailers who survived the dot-com shake out, limited competition could position them for their best holiday season yet."
"Convenience Store" Takes on New Meaning
Holiday shoppers have their sights set on convenience: when asked the primary reason behind which shopping channel they choose, respondents ranked "convenience" first, followed by "value for the money," "selection," and "low prices." In addition, 56 percent said they would like to see all department stores have shopping carts, while 14 percent plan to shop for gifts in supermarkets, and 16 percent will buy gifts in drug stores. Weiner also noted that convenience is one of several factors contributing to the growing popularity of online shopping.
A significant increase in the portion of holiday budgets spent on gift certificates is another indication that shoppers crave convenience. Gift certificates tied music/videos as the second most popular gift category in this year's survey, behind clothing. Spending on gift certificates is up significantly, six percentage points since 2000. Weiner noted increased gift certificate sales could boost sales in the post-holiday period because certificate holders frequently spend more than their voucher's value.
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Source: Deloitte & Touche press release, November 12, 2002