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Retailers Set for Happy Holidays Amid Improved Sector Environment

The stock market might be on a roller-coaster ride, and U.S. economic indicators may be somewhat uneven, but the retail sector as a whole is humming along even as some areas and stores struggle.

A new consumer survey from the National Retail Federation (NRF) and Prosper Insights & Analytics found consumers will spend 4.1 percent more than last year during the holiday season, while Moody’s has changed its outlook for the U.S. retail industry from stable to positive for the first time since 2015.

In the annual NRF-Prosper survey, consumers said they will spend an average of $1,007.24 during the holiday season this year compared to the $967.13 they said they would spend last year.

“Confidence is near an all-time high, unemployment is the lowest we’ve seen in decades and take-home wages are up,” NRF President and CEO Matthew Shay said. “All of that is reflected in consumers’ buying plans. Retailers expect strong demand this year and are prepared with a wide array of merchandise, while offering strong deals and promotions during the busiest and most competitive shopping season of the year period.”

Shay noted that while tariffs on a wide range of consumer goods from China took effect last month, retailers imported record volumes of merchandise this summer ahead of the tariffs being imposed, and said any effect on pricing during the holiday season is expected to be minimal.

The consumer survey follows NRF’s annual holiday spending forecast, which takes into account a variety of economic factors to project overall spending rather than per-consumer spending. The forecast estimated holiday retail sales in November and December would increase between 4.3 percent and 4.8 percent compared to 2017, to reach between $717.45 billion and $720.89 billion.

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The survey said consumer spending will focus on three main categories during the holidays: $637.67 for gifts; $215.04 for non-gift holiday items such as food, decorations, flowers and greeting cards; and $154.53 for other non-gift purchases that take advantage of the deals and promotions throughout the season.

Holiday shoppers are planning to spread their shopping across multiple channels and types of stores, according to the survey. About 55 percent will shop equally online and in department stores, while 51 percent will go to discount stores, 44 percent to grocery stores, 33 percent to clothing stores and 24 percent to electronics stores.

The omnichannel approach finds 50 percent of those shopping online saying they will pick up their purchases in-store. For those online shoppers who want the package shipped to their home or office, 94 percent said they will take advantage of free shipping, 16 percent will choose expedited shipping and 11 percent will use same-day delivery.

Sixty percent of holiday shoppers said they are waiting until at least November to begin browsing and buying items for the season. However, 21 percent planned to start this month, and 18 percent said they began in September or earlier.

While sales and discounts were cited by 71 percent of respondents as the key factor in choosing a particular retailer, quality and selection of merchandise were cited by 60 percent, followed by free shipping among 47 percent and convenient location at 45 percent.

“Although sales will remain an important factor, shoppers want good quality and want to be able to find what they’re looking for,” said Phil Rist, executive vice president of strategy at Prosper Insights.

For the 12th straight year, gift cards are the most popular item on wish lists, requested by 60 percent of those surveyed, followed by clothing and accessories at 53 percent. Other important areas are books/movies/music at 37 percent, electronics at 29 percent, home décor with 23 percent, jewelry at 22 percent, personal care or beauty items at 19 percent, sporting goods at 18 percent and home improvement items at 17 percent. The survey of 7,313 adult consumers was conducted Oct. 1 to 11 and has a margin of error of plus or minus 1.2 percent.

In upgrading the retail sector, Moody’s said as it “starts to reap the benefits of investments in e-commerce capabilities and operating efficiencies in a very favorable macroeconomic environment, companies are seeing positive momentum on the topline growth and operating profits.”

Moody’s said the upgrade “marks a big change,” since as of late-2017, “the retail industry still had the distinction of holding the third-highest default rate among 18 U.S. corporate industries.”

“But a lot has changed, with the industry finally starting to gain traction from investments and a big boost from a very strong macroeconomic environment,” the ratings agency said. “Retail is benefiting from improved consumer sentiment, high consumer confidence and low unemployment.”

Moody’s said it was raising its 2018 forecast for operating income growth to reach 4 percent to 5 percent, from its previous forecast of 3.5 percent to 4.5 percent. Likewise, its 2018 sales growth forecast has increased to range from 4.5 percent to 5 percent, from 3.5 percent to 4.5 percent.

The report said home improvement, discounters, warehouse clubs, dollar stores, auto parts, online and off-price retailers are expected to perform well, while specialty retailers, department stores, and apparel and footwear merchants “are exerting the greatest pressure on the retail group in 2018.”

“We expect to see a very healthy 5 percent to 6 percent retail sales growth this holiday season, but retailers must manage promotional cadence to maintain margins,” Moody’s said. “We expect that online retail sales will eclipse 20 percent of total retail sales in the next five to six years compared to about 14 percent today.”