Facebook Pinterest Search Icon SourcingJournal_horiz Tumbler Twitter Shape photo-camera graph-trend Shape latest-news icon / user

Abysmal Holiday Shopping Season Predicted; Expect Heavy Promotions

Missed Sourcing Journal’s Virtual Sourcing Summit? It's not too late to view all keynotes and panels from the two days. Watch on demand now.

Consumer behavior is notoriously difficult to predict, swayed by a wide range of variables and often simply capricious. Still, many apparel industry analysts are confidently forecasting a disappointing holiday shopping season due to the shift generated by anxious consumers worried about a still struggling economy. And one influential report is hypothesizing that JC Penney’s (JCP) emphasis on promotions will force other retailers to follow suit, driving down profits for all.

The Morgan Stanley study, “Expect Coal: We Predict the Weakest Holiday Since 2008,” anticipates an anemic 1.6% rise in same-store apparel retailers. One big reason for the stagnant performance is the stubbornly frugal consumer, still slow to spend faced with an uncertain economy. The National Retail Federation expects that the average holiday shopper will spend about 2 percent less than they did last year, with 51 percent saying that economic worries are constraining their spending habits and 80 percent planning to spend less this year than they did last year.

The study confirms the result of another report recently issued by the CFI group, a search firm headquartered in Ann Arbor, Michigan, “Holiday Retail Spending Report 2013,” which paints a dour picture of the challenges this year’s shopping season promises. At least in part, the less than stellar forecast is attributable to consumer wariness in response to an intractably uncertain economy. A mere 21 percent of consumers plan to spend more on gifts than they did last year. The bulk of would-be shoppers reported they intend on spending less, guided by a spirit of frugality rather than holiday cheer.

The trends look even worse for apparel retail than for other sectors. Consumers have noticed that currently low interests rates have been steadily rising over the last few months and, in anticipating of further increases, are focusing their attention on larger purchases that would require a loan. Erich Patten, a manager at Cutler Investment Group LLC, observed, “Consumers recognize that financed purchases will be more expensive with rising rates, and thus are prioritizing them in the current economy. Demand for soft goods will return as interest rates rise and purchasing patterns normalize.”

At least for the short term, and this includes the important holiday shopping season, consumers are expected to to spend more on housing, automobiles and major appliances. According to poll issued Ipsos Research, 26 percent of US shoppers plan to spend considerably less on clothing this holiday season that typical and a meager 12 percent intend to spend  more.

The Morgan Stanley report also implicates JCP as a cause of the coming holiday shopping malaise. Their much anticipated maelstrom of promotional offers might trigger a chain of comparable discounts from their competitors, forcing down gross margins for the entire industry. The study likened the domino effect to the hitting of a “panic button,” which sends anxious reverberations across the entire soft-line retail sector. “We predict JCP will offer extremely deep discounts early in the season…putting pressure on other retailers to do the same,” the report said.

Contributing to consumer wariness are increases in payroll taxes and the rising cost of gas. Alison Paul, vice chairman at Deloitte LLP, explains, “You can’t get out of paying your taxes and you have to have gas to go to work and school. Those are real numbers that really do impact real Americans, and I think that’s where other discretionary spend takes a hit.”

Nevertheless, it seems like JCP’s financial struggles might bleed into the sector as a whole, its desperation diminishing the holiday shopping season for other ailing retailers. JCP’s troubles are substantial: Fitch forecasts that JC Penney will conclude 2013 with a cash burn of approximately $3 billion, about a billion more than the projections it released in May. JC Penney suffered this year from much weaker than anticipated comp store sales, a listless home department performance, massive markdowns necessary to move piling excess inventory and a significantly contracting gross margin.

Related Articles

More from our brands

Access exclusive content Become a Member Today!