shopping, e-commerce, consumer behavior

After a year of retail doom and gloom, it just might be a happy holiday season — just not if you’re a department store.

With the stock market at record highs and the prospect of tax reform nigh, consumers are loosening their purse strings, according to a flurry of research reports predicting widespread healthy holiday sales.

But department stores are projected to keep losing ground, even as they race to reinvent in the face of the e-commerce onslaught and shoppers’ desire to create memories, not acquire stuff.

This week Customer Growth Partners forecast that U.S. holiday sales would rise 4.3 percent to $662.8 billion. Brand Keys Inc. predicted that the average household would spend $936 during the holiday stretch, or 4 percent more than they did last year.

Craig Johnson, president of Customer Growth Partners, said home furnishings retailers, superstores and warehouse clubs, Costco, Wal-Mart, online sites such as Wayfair, and food and beverage would be among the best performers for holiday.

“With a growing ‘wealth effect’ due to stock market gains, luxury stores will enjoy a happy holiday after two years of coal in their silk stockings,” Johnson observed.

However, department stores, sporting goods and toy stores will not perform as well. Traditional malls, where department stores are heavily concentrated, now account for barely 15 percent of total retail sales, down from 35 percent a generation ago, according to CGP.

“Total department store sales will decline sharply, as the overcapacitated sector belatedly downsizes by hundreds of stores from last year,” said Johnson.

He sees department stores dropping 3.9 percent, though that represents “a sequential improvement from last year, as the mall traffic woes ease, and as the stores ramp up their online sales. Apparel stores will struggle with only 1.8 percent growth, although that represents an acceleration from dreadful 2017 year-to-date growth of only 0.5 percent.”

In many cases, investors aren’t waiting around to see if the dire predictions for department stores turn out to be true.

Indeed some department store operators themselves are seeing better uses for their own space beyond retail. Witness Richard Baker’s $850 million deal last week to sell Lord & Taylor’s Fifth Avenue flagship in Manhattan to WeWork and buttress parent company Hudson’s Bay Co.’s bottom line.

Among publicly traded department stores, Hudson’s Bay was an outlier Monday, gaining 1.3 percent on the Toronto Stock Exchange to 11.18 Canadian dollars.

The picture was much grimmer on Wall Street, where Citi downgraded Macy’s Inc. to sell and said of the company, “they no longer make much money as a retailer,” according to reports.

Shares of Macy’s dropped 4.3 percent to $18.84.

Also losing ground were Bon-Ton Stores Inc., down 14.4 percent to 83 cents; J.C. Penney Co. Inc., 8 percent to $2.87; Dillard’s Inc., 2.6 percent to $51.08; Kohl’s Corp., 2.5 percent to $41.50, and Nordstrom Inc., 2.4 percent to $40.

J.C. Penney is off 22 percent since it warned Friday morning that it cut prices to liquidate slow-moving apparel and would log steep third-quarter losses. The embattled company, which is hoping appliances can help pick up the slack for fashion, has a market capitalization of just $892 million.

Beyond the department store sector, the economics of the moment — including solid employment gains and stronger consumer confidence — supports solid holiday spending.

IHS Markit projected a 4.1 percent gain in holiday sales this year. That would be the strongest growth rate since 2014, although with the real expansion is expected to come in e-commerce.

“While retailers as a whole are likely to have a good season, online-based merchants will continue to outperform their brick-and-mortar counterparts,” said Chris Christopher Jr., executive director of economics at IHS. “Over the past several years, online retail sales have accelerated and are making a sizable dent in brick-and-mortar sales. Online holiday retail sales growth this year is likely to outpace last year’s growth, going from 12.8 percent in 2016 to 13.1 percent this year. As a share of holiday spending, online holiday retail sales will reach a new high: last year, online sales represented 16.8 percent of holiday retail sales, and this year that share is likely to be 18.3 percent. Online holiday sales will only continue to gain market share, and many traditional retailers are being forced to adapt in order to survive.”

Early in October, the National Retail Federation forecast retail sales to increase between 3.6 and 4 percent in November and December, with sales totaling between $678.75 billion and $682 billion, compared with last year’s $655.8 billion.

Joining the chorus was the International Council of Shopping Centers, predicting a 3.8 percent increase in holiday spending.

But PwC was most bullish, forecasting a 6 percent gain in holiday sales, though that forecast included travel and entertainment as well as gifts.

“After a slow Q1, up only 2.3 percent year-to-date, retail spending is gaining speed with each passing month, now doubling its growth pace from early this year,” Johnson said. “Holiday may not reach the peak 6 percent growth of the [mid-Aughts] bubble years, but 4.3 percent is a healthy pace, well above the 3.7 percent consensus, and based on the latest data, could even approach 5 percent. This year’s holiday may well mark a turning point not just for retail, but for overall consumer spending, which drives 70 percent of the economy.”

Robert Passikoff, founder and president of Brand Keys, a brand loyalty and customer engagement company, said, “Generally good economic news has consumers signaling a 4 percent increase in their holiday spend this year to an average of $936 per household.”

Passikoff said consumers would shop earlier this year, noting, “Retailers have recognized shifts in the consumer shopping paradigm, and will again try to capitalize on them by kicking off Black Friday-like sales even earlier than in previous years.”

He said the holiday represents nearly 25 percent of the retail industry’s total sales and will be spread out over a four month-plus period even though the holiday season is traditionally defined as the 61 days of November and December.

“It may work that way on the calendar, but not in successful retailers’ marketing strategies,” said Passikoff.

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