Customers’ ‘Burning Desire for Discounts’ the Key to Holiday Retail Success

According to S&P:

Sales may rise, but margins will depend on retailers’ inventory positions, the cadence of their promotional activity, and how they handle consumers’ burning desire for discounts. Still, there is hope for some margin improvement over last season because we think many retailers have planned inventory purchases for tepid holiday sales — a good sign of realistic expectations.

The NRF’s CEO chose a more upbeat way of saying pretty much the same thing:

Recognizing the need to keep household budgets in line, we expect shoppers will be extremely price sensitive as they have been for quite some time. Retailers will respond by differentiating themselves and touting price, value and exclusivity.

The NRF’s chief economist added:

In the grand scheme of things, consumers are in a much better place than they were this time last year, and the extra spending power could very well translate into solid holiday sales growth for retailers; however, shoppers will still be deliberate with their purchases, while hunting for hard-to-pass-up bargains.

Gasoline prices that average below $3 a gallon across the United States are expected to put about $100 more in every consumer’s pocket in 2014, according to Macquarie Research. That translates to a boost of more than $40 billion, compared with consumer spending in the fourth quarter of last year.

Another retail analyst noted consumer caution though: “They are saving more than they are spending.”

How consumers treat their fuel-cost savings matters. Consumer spending accounts for about two-thirds of U.S. gross domestic product (GDP), and the two-month holiday period usually accounts for around 20% of annual retail sales. S&P concludes, “We think the cautious consumer and a shortened (albeit one day longer than 2013) holiday selling season translates into another compressed and promotional holiday retail season.”

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