S&P Global — 27 November 2024
Daily Update: November 27, 2024
Holiday Sales To Have a Lackluster Year
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
Enter a retail establishment this week and you will likely be subjected to a tinny, overly compressed version of “Jingle Bell Rock.” Pity the poor retailer desperate to jump-start holiday sales with a little strained jollity. The final three months of the year are often referred to as the "golden quarter" since they can account for as much as one-third of sales and up to half of annual profits for retailers of discretionary products such as electronics, apparel, jewelry and toys. If a retailer cannot convince consumers to spend in these months, the outlook is bleak.
S&P Global Ratings forecast US holiday sales to grow about 3% this year. While growth of any kind is welcome, US holiday sales in 2023 grew 4.7%, and the 10-year average for holiday sales growth was 5.3%. Retailers in Europe are confronting their own ho-hum projections, with fourth-quarter sales forecast to grow 2%-3% year over year. Retail spending is also slowing in China in the lead-up to Lunar New Year on Jan. 29, 2025. S&P Global Ratings expects lukewarm economic conditions to persist in China, weighing on consumer confidence.
For once, it’s hard to fault inflation for weaker retail sales. The US Consumer Price Index increased 0.2% in September, bringing the annual inflation rate close to target at 2.4%, and measurements of consumer sentiment have improved in the second half. Despite the recovering macroeconomics, persistent inflation in the last few years has eaten into consumer purchasing power. Sales growth has been slow because store prices continue to feel elevated for consumers compared with a few years ago.
That consumers appear unbowed by long-running inflation pressures may be a silver lining for some retailers this festive season, according to Michael Nocerino, research analyst at S&P Global Market Intelligence 451 Research, in the group’s quarterly macroeconomic survey: “To see consumer spending stay steady and even improve a little bit during a very important time of the year, like holiday spending, could bode well for retailers this year.”
S&P Global Ratings anticipates that department stores and apparel retailers will rely on bigger discounts to increase traffic and offload inventory this year. Demand has been soft in specialty categories such as consumer electronics and home furnishings, so promotional activity will be necessary to spark demand. As price increases are unwelcome and unpopular, consumer goods companies will focus on volume-driven organic growth. Competition for consumer share-of-wallet is intensifying, so companies will invest in brand preference and promotions.
S&P Global Ratings noted that most negative rating actions in the past 12 months have been in the apparel, accessories and specialty subsectors, where exposure to discretionary spending is high. The negative outlook bias in the US is 21% in S&P Global Ratings’ retail and restaurants portfolio, meaning that an unburnished golden quarter may have serious implications for retailers.
Today is Wednesday, November 27, 2024, and here is today’s essential intelligence. The next edition of the Daily Update will be published Monday, December 2.
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