Economy / Fiscal policy

Holiday Spending: Past, Present, and Future

For the past decade holiday spending has begun before Halloween for about 40% of Americans, meaning the 2013 season is already underway. Halloween spending has served as an indicator of things to come, and this year spending decreased slightly (first decrease since 2009). The National Retail Federation (NRF) has projected a modest 2% spending decrease for the average holiday shopper this year, with the average amount spent on gifts falling to $737.95 as opposed to $752.24 last year. NRF is forecasting that total holiday sales will increase 3.9 percent to $602.1 billion.

The tepid projection is a function of the fact that although the amount of time since the recession is increasing, finances are still a great concern for Americans with 54% reporting they are worse off financially this year than last. Consumers were polled as to whether the political climate in Washington would affect their decisions and the answer was “likely” for a third of respondents, and even higher for middle aged respondents.

Promotions are anticipated to be generous this season. Kmart has already begun to run promotional ads for its free layaway service more than 100 days before Christmas. Retailers are faced with increased competition amongst one another as consumers are better informed about promotional information via their smart phones and tablets. Foot traffic is increasingly difficult to attract due to the ease of online shopping and 2013 is the first year in which online shopping is anticipated to outpace in-store purchases.

The large promotions will hopefully increase the amount of self-gifting, where shoppers make purchases for themselves because the deals are too good to pass up. This trend may help boost overall holiday sales, but the net effect may be a loss for stores as shoppers hold off on making intended purchases until prices are discounted. Another competitor is the gift card industry which is expected to be the most gifted item on holiday shopper’s lists while cash is considered to be the most desirable gift by recipients.

Deloitte is projecting a 4-4.5% increase in store sales and views mobile phone integration as a benefit for stores providing data that consumers with smartphones are actually more likely to make purchases as compared to their non-smartphone owning peers. Retailers will heavily target shoppers through social media as well as push text notifications in an efforts to maximize awareness.

The table below examines the discrepancy between projected holiday spending and actual is displayed in the table below:

Projected vs. Actual Consumer Spending

Year Projected Per Person Actual Spending Projected Overall (billion) Actual Spending
2007 $816.69 $755.13 $474.5
2008 $832.36 $694.19 $470.4
2009 $682.74 $681.83 $437.6
2010 $688.87 $718.98 $447.1
2011 $704.18 $740.57 $465.6 $560.2
2012 $749.51 $752.24 $586.1 $579.5
2013 $737.95 $602.1

Planned holiday savings programs such as the Christmas Club, a short term savings account, reached a peak of popularity in the 1970’s, which has since declined and indicates that people are budgeting for holiday spending differently. The direst outlook stems from a poll by TransUnion which found that 64.3% of shoppers enter the holiday shopping season without savings, leading to heavy reliance on credit cards.

Another major component of the spending equation is after-Christmas sales, which can account for 15% of holiday spending. If retailers are going to sell the 18% increase in inventory that they are planning to display, they will need to use their media campaigns to attract consumers, price in such a way that consumers are prone to buy, and continue to offer attractive prices throughout the season. The actual consumer holiday spending in 2013 is akin to the Ghost of Christmas Yet to Come, but hopefully the numbers are less somber.