Strong overall consumer fundamentals such as a strengthening labor market, solid consumer confidence and improving household balance sheets could lead to above-average retail sales growth for the 2021 holiday season, in our view.
Risks include cost inflation, congested ports and a shortage of workers, all of which could have a dampening impact on holiday sales totals.
The overall retail industry has experienced an average of 4.5% year-over-year sales the last five years, according to the National Retail Federation (NRF).1 During the 2020 holiday season, retail industry sales grew 8.3% year-over-year, according to the NRF.
We estimate it is possible 2021 holiday season retail industry sales could exceed 10% growth over last year. Here are additional holiday growth outlooks for 2021 compared to the prior year:
- National Retail Federation: +8.5% to +10.5%1
- Deloitte: +7.0 % to +9.0%2
- Mastercard SpendingPulse: +7.4%3
- Bain: +7.0%4
Will retailers be ready for the holidays?
Several retail industry participants placed holiday season orders early this year, in anticipation of strong consumer demand and longer shipping times.5 That said, we believe it will be harder for retailers to replenish holiday inventory this year because of longer shipping times.
According to a survey by Shopkick, 22% of consumers said they plan to start their 2021 holiday season shopping earlier than last year, with 10% expected to complete most of their shopping before Halloween and 25% before Thanksgiving.6
Historically, consumers have benefited from day-after-Thanksgiving Black Friday promotions and discounts. Promotional activity this season could be lower than previous years, in our view, because longer shipping times have lowered inventory levels for several retailers. Typically, fewer promotional discounts could lead to higher gross profit margins for retailers, but we believe higher labor costs and increased global shipping costs could lead to relatively flat gross margins this holiday season.
Compared to last year, retailers have one more day to attract shoppers — 29 days total between Thanksgiving and Christmas. However, given the extra day is a weekday, we believe there could be a modest positive impact on total sales.
And the winners are…
We believe apparel, accessories and jewelry could be category sales leaders for the 2021 holiday season. Given consumers are more frequently leaving home for work, school and social activities, there are more occasions to buy and wear apparel.
In summary, we believe that 2021 retail industry holiday season sales growth could exceed consensus forecasts based on strong consumer fundamentals.
If you have holdings in the Consumer Discretionary and Consumer Staples sectors, you could consider scheduling a portfolio review with your financial advisor. The personalized advice they offer will help ensure investment selections remain appropriate for your financial goals, risk tolerance and time horizon.