Despite relatively bullish holiday outlooks, cracks are starting to appear in the second half.
Sales were sluggish last month, stores are seen trying to delay planned shipments from vendors and retail giant Wal-Mart Stores Inc. guided Wall Street lower for the year, blaming a weaker revenue forecast on currency fluctuations.
“Things are weaker than people are thinking,” said Craig Johnson, president of Customer Growth Partners.
He has yet to release his holiday forecast, but said that projections for sales growth of 3.5 to 4 percent were aiming too high.
“It’s weak at Wal-Mart, all the value retailers are on the weak side, Dollar General, Dollar Tree,” he said. “Only about 48 percent of working-age adults have a full-time job, that’s the problem. Missing is about 15 million full-time jobs [considering what labor force participation was a decade ago]. People with full-time jobs spend against both needs and wants. If you have only a part-time job, you’re spending against needs.”
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The International Council of Shopping Centers on Wednesday projected sales for the November and December period would rise 3.3 percent as shoppers spend $702 on average for the holidays, including $575 for gifts. By comparison, Macy’s Inc. surveyed 5,000 of its shoppers and found they plan to spend $1,211 on average this holiday season, with apparel and gift cards ranking as the top categories. Millennials plan on spending $971 while their older counterparts project $1,304.
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An ICSC spokesman said shoppers are heading into the season supported by lower gas prices, lower unemployment and higher housing prices.
“While certain headwinds exist, such as uncertainty in global financial markets and minimal wage growth in the U.S., the positive macroeconomic trends are likely to win out and propel retail sales throughout the holiday season,” he said.
The ICSC’s sales projection is lower than the best guess by the National Retail Federation, which predicted holiday sales growth this year of 3.7 percent, down from 4.1 percent last year.
Just how antsy shoppers and retailers are will become clear next month when the big stores weigh in with third-quarter results. Industry sources have indicated that the quarter isn’t turning out to be as strong as many hoped, with warmer-than-usual weather taking a particularly big bite out of outerwear sales.
Gary Wassner, chief executive officer of Hilldun Corp., a Seventh Avenue factor with some 400 clients, said suppliers have fared well so far, but that they’re starting to get pressured by stores.
“I have heard that some of the retailers have been pushing orders ahead; they don’t want deliveries when they were expecting to get them,” Wassner said. “They’re moving them ahead because of their heavy inventory [position].”
“I attribute it to the promotional environment that the brick-and-mortar retailers have created,” he said. “The consumers are just sitting back and waiting a little closer to buy-now-wear-now.”
In general, the climate in fashion has also been a little blah.
“This year was not anticipated to be a very robust year,” said Michael Stanley, managing director of fashion factoring firm Rosenthal & Rosenthal Inc. “We’re seeing the actual results to be somewhat challenged through the third quarter.”
The Commerce Department said retail sales, excluding automobiles, fell 0.3 percent last month where economists projected a flat result. (Fashion fared somewhat better, with apparel and accessories stores up 0.9 percent and department stores up 0.4 percent.) Overall sales were also revised down for July and August. And business inventories were soft in August, unchanged for the second straight month where experts were looking for a slight uptick.
That reading on sales and inventories prompted J.P. Morgan to cut its estimate for U.S. economic growth in the third quarter to 1 percent from 1.5 percent.
“The consumption picture has now gone from great to good, and we are now tracking a still-solid 3.5 percent annualized pace of real consumer spending growth last quarter, down from our previous tracking of 3.9 percent,” wrote J.P. Morgan economist Michael Feroli in an analysis. “The September outcome was [likely] just a return to earth after a few very strong summer months for retail spending.”
IHS Global Insight economist Chris Christopher described the spending outlook as “relatively positive” and pointed to a 3.5 percent sales gain, but also highlighted potential troubles for the consumer spreading out from Washington and Wall Street.
“There is a considerable downside risk to the performance of discretionary spending, holiday retail sales and consumer confidence in the fourth quarter due to a possible government shutdown in December,” Christopher said. “In addition, a return of stock market volatility will not be a positive for consumer spending. Political bickering, name-calling, finger-pointing and equity markets going into a tizzy are major downers for consumer confidence and high-end luxury spending.”