Uptick in holiday sales. What does it mean for 2011?

The recently announced increase in November retail sales have caused the National Retail Federation to revise upwards total holiday sales growth projections from 2.3 percent to 3.3 percent.  According to the U.S. Commerce Department, November 2010 sales increased 0.8 percent over October 2010 sales, and were up 9.2 percent over November 2009 sales.  Furthermore, ICSC-Goldman Sachs Weekly Chain Store Sales Indexstated that same store sales grew 3.1% last week.

This is very good news for a retail industry that has struggled through two consecutive years of declining holiday sales, the time period in which most retailers move into the “black” on their P& L’s.
The sales growth was driven by three primary factors; deep discounts at brick-and-mortar stores, free shipping from online retailers and a consumer base that feels the economy might finally be improving enough to shop at Christmas like they used to.

The risk for retailers and suppliers alike is to read too much into this holiday’s sales increase and to project too rosy a forecast for 2011. The positive sales results come on the same week that Best Buy, the world’s largest consumer-electronics retailer, lowered its annual profit forecast for the year siting lower than expected U.S. sales.

November’s strong sales were helped with very strong “black Friday” and “cyber Monday” showing consumers desire to buy but only products that are deeply discounted. In addition, the ICSC also released data showing that the average holiday-gift completion rate is lower than it was last year at this time, indicating that perhaps shoppers are waiting to finish their Christmas shopping just before the holiday when discounts are even deeper.

The fact of the matter is that until the unemployment rate improves, the economy and thus, retail sales, will meander somewhere between soft and kind-of-sort-of-good. That being said there are strategies that manufacturers can take to make 2011 successful.

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