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

Uptick in holiday sales

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 Index stated 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.

Don't forget the majority

As we've learned from recent experiments, it is not wise to focus the majority of a company's resources toward an affluent clientele during a protracted recession and a limping recovery. Walmart recently squashed attempts in this direction for a "back-to-the-basics" strategy that that reemphasizes value, selection and ease of shopping. Even as the economy begins to improve, sales the first week of each month, the period when people receive their paychecks and when millions of American's receive their food stamp vouchers, are enormous.

According to the New York times, one in eight Americans receive their food from food stamps and one in four children. Recovery or not, there are still millions of Americans that are shopping for values on the most basic of items such as milk, bread and diapers just to make ends meet.

Price will continue to be the most important "P" in merchandising for a very long time.

Elegant value

Simultaneously, there is a modest recovery taking place and recessionary recoveries typically start with the middle-class. As more white collar workers and professionals that have been laid off in the past year begin to return to work and as the rest of us begin to feel as though things might be improving, shoppers will begin looking for elegance again, but at a value.

Middle-class and more affluent shoppers will begin to return to their favorite stores in 2011 as they have begun to do this holiday season, but the purse strings will still be tighter than before. Products and services that provide relaxation, entertainment and encourage family activities will be well received as long as the cost-value equation is strong.

Innovative solutions

During 2008 and 2009 millions of people were laid off meaning that those that remained employed saw their workload increase significantly. Meanwhile, children's ball games and performances still go on and the house still needs to be cleaned. Time saving and convenience solutions are needed now more than ever and shoppers will be on the lookout for the next great product that will actually make their lives easier.

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