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September 30, 2013

Purdue expert: Holiday retail sales likely to lag behind last year

WEST LAFAYETTE, Ind. - Retail sales this holiday season won't be as strong as last year's, predicts Richard Feinberg, a Purdue University professor of consumer sciences and retailing.

Feinberg cites the end of a Social Security tax reduction along with lingering high rates of unemployment and underemployment as possible causes for stagnant spending.

He expects retail sales to range from flat to 5 percent lower than last year. He calls any suggestion of an increase over last year "overly optimistic."

Consumers spent $590 billion during the 2012 holiday retail season. 

The end of the Social Security tax reduction means families have $700 to $1,000 less in spendable income this year.

"That translates to anywhere from $82 billion to $117 billion that consumers had last year that they don't have this year," Feinberg says. "And this hasn't been made up by any rise in income or employment."

Holiday sales are crucial to retailers. They account for about 20 percent of annual retail sales and about 35 percent of profit, Feinberg says.

But this year retailers appear to be cutting back on holiday-season inventory, which will limit what they have on hand even if sales pick up, he says.

The one area of likely increase is online sales. Feinberg predicts online ordering will increase from 10 percent to 15 percent over last year. Still, online represents less than 10 percent of all retail sales, he notes.

Feinberg says there is a caveat to all holiday sales predictions: "Any number of external events can significantly affect holiday retail sales. Consumer spending is sensitive to poor weather, government inaction leading to shutdowns, gasoline prices, and geopolitical situations at home and abroad." 

Writer: Judith Barra Austin, 765-494-2432, jbaustin@purdue.edu  

Source: Richard Feinberg, xdj1@purdue.edu