November 17, 2004

Purdue prof forecasts merry Christmas (shopping) season for all

WEST LAFAYETTE, Ind. – Everything is in place for a merry Christmas shopping season for store and Internet retailers, shoppers and gift recipients, says a Purdue University retailing expert. Only a major jolt to the world economy could spoil the favorable retail environment.

"We're predicting a 4 percent to 7 percent increase in retail sales over last year," says Richard Feinberg, a researcher with the Purdue Retail Institute. "A decade ago we considered double-digit increases normal, but now, because of the increase in channels – Internet and TV sales – anything more than a 5 percent increase is considered quite healthy."

Feinberg, a professor of consumer sciences and retailing, says in his annual Christmas retail forecast that retailers, for whom the holiday season brings in up to 40 percent of annual sales and 75 percent of yearly profits, will prosper. Traditionally, the holiday shopping season runs from the day after Thanksgiving through the end of the year.

Internet sales will continue to grow this year, Feinberg says, but the smart retailers will be employing "multichannel retailing." This involves using brick-and-mortar stores and the Internet in tandem to capture sales from the wired and wireless contemporary consumer.

"Internet sales are expected to be 6 percent – $12 billion to $13 billion – of the $220 billion of holiday sales," Feinberg says. "Internet sales translate into 1 percent to 2 percent less for store sales, so store retailers are maintaining Web sites for consumers who research their sales online and then go to the store to make their purchases."

Feinberg says increasing Web retail presence has given birth to one Grinchy trend: a decline in office productivity caused by the 60 percent of Internet shopping that takes place at work. However, because of the shipping involved in Internet sales, online sales drop off the week before Christmas (Dec. 17-24). This is the same time frame in which store retailers ring up about 35 percent of their holiday sales, making it the biggest shopping week of the year.

What's driving the happy Christmas retailing engine this year?

Feinberg says, "It's the economy. Job figures, personal income and consumer confidence are up, and gas prices are coming down. George Bush's re-election is also positive because it increases certainty in the retail marketplace, which dislikes uncertainty."

However, Feinberg says uncertainty in the form of a catastrophic news event could undermine economic confidence and wreck the season for retailers.

– The overall profit outlook for stores is better than sales outlook because low inflation means even moderate sales increases will lead to bigger retail profits than in past years.

– Gift cards will be big this year, representing 4 percent to 10 percent of all holiday sales, Feinberg predicts. Three-quarters of all gift givers will give at least one gift card averaging $35-$50. For the Christmas gift card receiver, a $50 card often is worth $100 in the week after Christmas when stores slash prices. But Feinberg estimates 10 percent to 15 percent of gift cards are never redeemed.

– Hot items this year include Barbie, singing Elmo, scented candles, chandelier earrings, video games and software, MP-3 players (like Apple's I-Pod) and plasma TVs.

– The second busiest week of holiday shopping will be two weeks before Christmas (Dec. 10-16), which will account for 18 percent to 23 percent of holiday sales.

– The third busiest week of the season will be the week after Christmas (Dec. 26-31), expected to account for 13 percent to 17 percent of holiday sales.

– There are two more shopping days from Thanksgiving to Christmas this year than last, but research at the Purdue Retail Institute has found no relationship between the number of days in the shopping season and total retail sales.

– The average mall will employ two Santas starting Nov. 20. The average mall Santa will see 80 children per day, and there will be 3,000 pictures with each mall Santa taken over the season.

– Less than 50 percent of all holiday shopping will take place in malls this year, so mall traffic and sales may be misleading. Often touted annual same-store sales comparisons can tell more about how a chain is doing than how good or bad the holiday retail shopping season is.

Writer: Mike Lillich, (765) 494-2077, mlillich@purdue.edu

Source: Richard Feinberg, (765) 494-8301, or (765) 491-5583 (cell) , xdj1@purdue.edu

Purdue News Service: (765) 494-2096; purduenews@purdue.edu

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