In just a few days, Americans will flock to local shopping malls or login to their favorite retailer’s websites and the annual holiday shopping season will be upon us. This period is by far one of the most important to U.S. retailers. The National Retail Federation (NRF) is forecasting a 3.8% to 4.2% increase in retail sales compared with the 2018 holiday season, totaling between $727.9 billion and $730.7 billion, excluding automobiles, gas and restaurants. Online and non-store sales are anticipated to once again post a double-digit gain year over year and will account for between $162.6 billion and $166.9 billion of total holiday-related expenditures.
The reasons behind the positive forecast for this year, which beats 2018’s increase of only 2.1%, include consumer confidence, wage gains, low unemployment and job mobility. Although showing a bit more volatility this year, consumer sentiment levels remain elevated and there is optimism at the individual level regarding job security and personal financial health.
Wage growth is another crucial factor. A report from ADP notes that wages for U.S. workers grew 3.2% over the last year, with the largest increases occurring in the construction, manufacturing and trade, transportation and utilities sectors. Although down from a 4% increase in the second quarter, wage growth remains healthy by historical standards, fueling retail sales.
NRF also projects seasonal hiring to increase over last year with between 530,000 and 590,000 temporary workers added to retailers’ payrolls for the annual shopping binge. However, a report from Coresight Research notes that retail job creation in the U.S. has slowed this year. Based on that trend, Coresight, in contrast to NRF, predicts that retailers will hire similar or fewer seasonal employees than last year.
If this proves to be true, is it a function of the extremely tight labor market, as the U.S. employment rate has plunged to a 40-year low and fewer people are employed in part-time positions? Or have recent advances in innovation and retail-related technology created efficiencies, allowing retailers to operate with fewer store employees, while still providing the same level of service and experience? This is unclear.
The Coresight report does, however, note an increase in hiring activity in the transportation and warehousing sectors, two mission critical sectors in meeting the demand from the fastest growing portion of the total holiday sales picture – e-commerce and direct-to-consumer brands. With online and non-store holiday sales projected to increase by 11% to 14% over last year, this trend makes sense.
While growing at a double-digit annual rate, e-commerce still accounts for only 10.7%of overall retail sales in the U.S. Some estimates project that percentage to grow to between 20% and 25% over the next decade. Even so, the death of brick-and-mortar retail has been overhyped. The blending of shopping experiences places even more importance on a physical store presence. For direct-to-consumer retailers, this strategy allows them to enhance connectivity with their customers, leading to a variety of downstream benefits and insights.
Negative headlines continue to create a discouraging perception of the current state and future of traditional retail. And it is true that retailers have closed 9,052 stores to date this year, far surpassing last year’s total of 5,844. At the same time, there have been 3,956 store openings, nearly 600 more than the number of openings during all of 2018. Some name brand retailers, though, continue to struggle with bankruptcy or liquidity issues, along with declining sales.
Against this backdrop, the truth is much more nuanced. Consumer demand continues to grow as evidenced by recent reports and forecasters expect a very robust holiday sales season. Disruption and innovation will continue to impact both retailers and their shopping center landlords. In this rapidly evolving, technology-enhanced world, there appears to be no shortage of creativity and new ideas to meet the changing preferences and to enhance the experiences of the U.S. consumer. Physical retail is far from dead, but it will be completely different from the shopping center of the past. The retail apocalypse remains a myth.
About the author:
Loren DeFilippo is the Director of Research for Colliers’ Ohio markets, providing analysis and insight on commercial property trends. Drawing on 30+ years of experience, Loren focuses on turning data into actionable intelligence for our clients and brokerage teams.