Will US retailers weather the weather this year?
The effects of American's recent hurricanes, rising oil prices and higher housing costs all present big challenges for the 2005 holiday retail season, and high inventories and moderated consumer demand will drive retailers to pursue more substantial promotion strategies, according to Deloitte Research.
Deloitte Research's Leading Index of Consumer Spending and 'Outlook for the Holidays' report reveal that, although US retailers face several hurdles this holiday season, their strategies can easily be adjusted to reflect the coming retail environment and consumer purchasing power.
Carl Steidtmann, chief economist for Deloitte Research and author of the monthly index, said: "Consumers have done a heroic job in holding up their end of the economy over the past eight months, with real consumer spending rising by 4%, despite real wage declines, slow employment growth, and a rising tax burden. But continued weakness in the index poses a challenging sales environment for retailers as they move into the all-important holiday season."
Success strategies According to Pat Conroy, vice chairman and national managing principal for Deloitte's consumer business practice, retailers can reduce their exposure to negative consumer spending factors by re-examining their inventory commitment, focusing on in-store promotional plans, and offering creative purchasing options such as gift cards or associated value added services.
Conroy added: "Retailers must also put special emphasis on maximising their conversion rate. It will be critical for retailers to carefully manage their talent and align their seasonal hiring plans and training to ensure a high level of customer service."
Index highlights Highlights of the index, which tracks consumer cash flow as an indicator of future consumer spending, include:
- General Merchandise, Apparel and Furniture (GAFO) sales growth is expected to slip to between 4% and 4.5% for the holiday season.
- Personal income tax levels continue to rise slowly, with federal tax revenues for the first eleven months of the fiscal year up 13.7%, accounting for a US$100 billion reduction of deficit estimates for 2005. But disaster relief spending will temporarily limit this effect.
- Initial unemployment claims have increased in the wake of Hurricanes Katrina and Rita, but the trend will reverse as rebuilding efforts begin. Additionally, the loss of employment will temporarily depress household cash flow.
- Real hourly wages continue to decline due to rising energy and benefits costs, with the short-term deterioration in the labour market acting as a barrier to future real wage growth.
- Continued high-energy prices will negatively affect consumer spending, particularly for lower income households.
- Real house prices continued to slide and are down compared to one year ago. The weakness in house prices is the biggest single factor in the slowdown in the Deloitte Index.
According to Deloitte Research, the index (comprising four components: tax burden, initial unemployment claims, real wages, and real home prices) fell in September to 3.38%, from a downwardly revised gain of 3.75% in August 2005.