NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: 2014 Outlook: U.S. Retailing (Fight for Share-of-Wallet Continues)
Intense promotional activity during the holiday season will remain the key driver for consumer traffic given continued weak recovery in consumer spending and an ongoing focus on value, according to Fitch Ratings. As a result, gross margin is expected to decrease modestly for most retailers as they invest in pricing and online capabilities to drive traffic.
Consumers spent an average of $407.02 from Thursday Nov. 28 through Sunday Dec. 1, down from $423.55 during the same period last year, according to a National Retail Federation (NRF) survey conducted by Prosper Insights & Analytics.
Fitch expects 2013 holiday sales to grow in the 3%-4% range, in line with NRF forecasts that November and December sales will increase 3.9% year-over-year to $602 billion. The NRF forecast is higher than the 10-year average holiday sales growth rate of 3.4%, but below the 5.1% and 5.3% gains in 2010 and 2011, respectively.
The discount sector (including Wal-Mart, Target, and the dollar stores), continues to face holiday season headwinds, pointing to soft sales growth and aggressive pricing actions. Weakness in the sector is a function of anemic hiring levels, the payroll tax increase and low food inflation. Weak top-line growth will likely persist in the absence of more robust employment numbers and improved consumer confidence, though year-over-year comparisons will be easier in 2014.
Promotions are likely to be most significant this holiday season in areas such as apparel, as well as consumer electronics and toys, where traditional pure play retailers such as Best Buy Co. Inc. and Toys "R" Us, Inc. try to fend off competition from discounters and online retailers by offering price matches on items available both online and in stores. Four in 10, or 42.1%, of consumers indicated they shopped online over the weekend, according to the NRF survey.
U.S. retail sales (excluding auto) as reported by the Census Bureau grew by 3.1% year to date through September, at the low end of Fitch's expectation of 3%-4% growth for the year. This was led by low double-digit growth in nonstore retailers (approximately 12% of total sales) and almost 7% growth in building materials (9% of total), offset somewhat by a mid-single digit decline in department store (4.6% of sales), flat electronics sales (2.7% of sales), and softer than expected general merchandise sales.
Fitch believes the payroll tax increase and the shift in consumer demand toward bigger ticket items could continue to pressure general merchandise and apparel throughout the holiday season. And while real household income has contracted slightly over the past two years, we expect modest growth here as low food and gas price inflation provide increased discretionary spending.
For additional information, please see our special report titled, "2014 Outlook: U.S. Retailing," which is available on our Website www.fitchratings.com.
Additional information is available on www.fitchratings.com.
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