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Holiday 2021 Sales Outlook: Santa's Bag Is Filled This Holiday Season, Thanks To Deep Consumer Pockets


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Holiday 2021 Sales Outlook: Santa's Bag Is Filled This Holiday Season, Thanks To Deep Consumer Pockets

Our expectation of 8.5% holiday sales growth is well above the 3.5% average of the past 20 years. Our analysts across the retail and consumer teams estimated growth of 4%-11%, reflecting a mix of consumers' pent-up demand, price inflation, and supply chain constraints. The holiday shopping season is traditionally the most important sales period for the retail sector. This season represents a unique opportunity for retailers to benefit from consumers' eagerness to bring extra cheer (and gifts) to in-person celebrations. Only a few hurdles stand between retailers and a bonanza holiday: supply chain bottlenecks, labor shortages, cost inflation, and a potential fourth wave of the COVID-19 pandemic. We believe the largest retailers will reap most of the rewards.

Chart 1


November And December Holiday Total Retail Sales

Consumers are spending their accumulated savings, despite inflationary concerns.

October 2021 retail sales increased 1.7% from September 2021 and 16% year over year, according to the Census Bureau. We believe the positive retail numbers in October signaled consumers' good financial position and continued elevated demand for the upcoming holidays. The numbers also illustrate consumers' capacity to absorb most of the price increases retailers have implemented. We believe inflation has had only a modest effect on consumer spending in, for example, clothing, accessories and food service and drinking places. The flat month-over-month results in apparel and restaurants is likely also a result of supply chain constraints and labor shortages. As inflation filters into nondiscretionary items such as grocery, demand for discretionary categories such as apparel and dining out could soften. Still, consumers are spending above pre-pandemic levels, demonstrating their relative price insensitivity, and we expect this to sustain through the holiday shopping season.

Chart 2


Department stores and non-store (e-commerce) retailers, typically big beneficiaries of past holiday spending, performed well in October. In our view, consumers shopping early and absorbing price increases explain these significant gains. The largest players in these two retail channels (Macy's and Amazon) reinforce our confidence that large retailers are likely to navigate supply chain and inflation challenges better than issuers with less scale and operational sophistication (see "Labor And Supply Chain Woes Chill Retail Spirits For Holidays And Beyond," published Sept. 28, 2021 and "On Activists' Wish List: New Spin On Macy's And Kohl's This Holiday Season," published Nov. 15, 2021).

Chart 3


Consumers are shopping for gifts earlier than usual on fear of missing out on merchandise availability.

We think it is a seller's market because supply chain and inventory challenges are well-publicized and consumers are experiencing firsthand stock-outs and delayed deliveries. As retailers receive inventory, they are putting the merchandise on shelves, and consumers are buying out of fear that the merchandise will not be there if they delay the purchase. This behavior drives greater full-price sales, helping retailers limit promotions that they have historically been compelled to resort to because of competitive dynamics. Over the long term, we expect these competitive dynamics to return unless retailers learn from current supply chain constraints that lower inventory levels can be good for business.

Sales may rise, but profit margins depend on how well retailers manage costs.

Supply chain, labor inflation, and commodity costs are a trifecta of headwinds that could squeeze profit margins in the coming quarters. The magnitude of margin pressures depends partly on the size of the retailer. Although we believe consumers are in a good position financially, we don't expect retailers to be able to fully pass on their cost to consumers because that would risk alienating customers. As a result, we think larger players--including Walmart, Home Depot, and Target--will fare better, given their ability to partially offset increased labor and freight costs with efficiency gains. Similarly, pulling orders forward, chartering container ships, and other creative workarounds to the supply chain bottlenecks have enabled these retailers to stock up inventory in advance of the all-important fourth quarter. However, the downside risk is that if consumers become overly cautious during December--a scenario we don't expect--retailers could be left with excess inventory they would need to mark down. In this scenario, margins could be pressured even more than we anticipate. Smaller players may take a bigger hit to margins because they don't have the scale to absorb cost increases.

As consumers increasingly shop across channels, retailers who offer an attractive omnichannel experience may have more reasons to celebrate.

E-commerce sales will grow this holiday season, partly fueled by a heightened sense of safety and convenience while the pandemic lingers. We think the real holiday winners will be the well-positioned merchants who have invested in their omnichannel capabilities to provide convenience, improved delivery options, and an attractive merchandise offering. As consumers increasingly shop across channels, retailers with brick-and-mortar locations can also benefit from stronger online sales, given the growth of "buy online, pick up in-store" and "buy online, ship to store" options. Rising e-commerce penetration is usually accompanied by margin dilution as online orders cost more to fulfill and ship. Retailers who can maintain margins while providing a seamless omnichannel experience will have a better competitive position this holiday season.

Expectations are high for retailers to reel in holiday sales.

Despite ongoing supply chain and labor challenges, external analysts are forecasting a robust holiday season. We have consolidated a variety of qualitative and quantitative holiday sales forecasts and announcements (table 1). The various forecasts do not all measure the same definition of sales, but they reflect similar expectations of a very positive retail holiday season.

Table 1

Holiday 2021 Outlooks Are Robust
Organization Source Forecast
PwC PWC 2021 holiday outlook PwC's holiday spending survey found consumers will spend more than 20% compared to 2020, when the pandemic ground most holiday travel to a standstill. Even compared to the pre-pandemic 2019 season, spending is up 13%, as consumers seek respite at the holidays. Millennial shoppers (those 25-38 years old) will spend the most.
Deloitte Deloitte 2021 holiday retail survey Deloitte expects holiday shoppers to spend an average of $1,463 per household, up 5% year over year. Shipping delays and stockout concerns are prevalent. Engagement with digital platforms remains high, and the company expects 62% of spend will occur online, while curbside pickup and "buy online, pick up in-store" remain popular for convenience.
National Retail Federation (NRF) NRF's holiday forecast NRF forecasts that holiday sales during November and December will grow 8.5%-10.5% from 2020 to $843.4 billion-$859 billion. Furthermore, NRF expects that online and other non-store sales, which are included in the total, will increase 11%-15% to $218.3 billion-$226.2 billion, driven by online purchases.
International Council of Shopping Centers (ICSC) ICSC holiday intention forecast survey ICSC forecasts a 8.9% year-over-year spending increase, with total projected spending of $923 billion. The average adult plans to spend $637 on holiday-related items. E-commerce sales growth is expected to be 13% more than in 2020.
AlixPartners AlixPartners U.S. retail holiday-outlook survey AlixPartners forecasts a 10%-13% increase in sales over the same three-month period in 2020. Meanwhile, the firm's survey, an annual poll of more than 1,000 consumers, showed 53% of consumers plan to start holiday shopping by Halloween or earlier, an increase of four percentage points from last year's survey. 
Coresight Research Coresight Research U.S. retail outlook preview Coresight Research is penciling in a strong total expansion in retail sales for the holiday quarter, rounding off an exceptionally buoyant year for retail sales. Coresight Research's survey expects a 9%-10% increase in total retail sales over the same period in 2020 and a 19.6% increase over 2019. Furthermore, the survey found a 54.4% year-over-year increase in announced holiday hiring plans compared to the 2020 holiday season--and a 24.4% increase over pre-pandemic 2019--by retailers and allied sectors such as logistics companies.
FedEx Corp. Announcement Fedex expects this holiday season to be a peak shipping seasion. The company set a deadline of Dec. 9 for domestic ground economy shipping and Dec. 15 for domestic ground shipping. Packages can be shipped through different express services between Dec. 21 and 24 to arrive on Dec. 25.
Bain & Co. Bain 2021 holiday shopping outlook Bain forecasts total U.S. holiday retail spending could hit $800 billion during November and December 2021--a 7% sales growth rate. In-store sales are expected to account for about 75% of total U.S. sales this holiday season. Although e-commerce growth has tapered in the past few months as consumers shifted more of their spending back to stores, Bain expects this segment to rebound to high-single-digit growth during the holidays.

Who (Really) Needs To Have A Happy Holiday?

We have an overall stable bias for rated retail and restaurant companies. However, we believe risk of missing out on a good holiday are higher for smaller retailers who could face some difficulties procuring inventory and have less room to manage cost inflation. We believe issuers with negative rating outlooks are at risk of downgrades if they cannot navigate cost inflation, supply chain constraints, and labor shortages (table 2 includes 2019 data, which we believe reflects more typical holiday results than 2020). Without a jolly holiday season, we could see incremental rating pressure for these retailers.

Table 2

Exposure To Holiday Sales In 2019
As a percentage of full-year 2019
Company Rating as of Nov. 19, 2021 Subsector Fourth-quarter share of total operating profit

GameStop Corp.

B/Stable Specialty >100%

Abercrombie & Fitch Co.

BB-/Stable Specialty apparel 93%

Signet Jewelers Ltd.

BB-/Stable Accessories 85%

Macy's Inc.

BB-/Positive Department store 69%

Dillard's Inc.

BB-/Stable Department store 53%

At Home Group Inc.

B/Stable Specialty 49%

The Michaels Cos. Inc.

B/Stable Specialty 49%

Best Buy Co. Inc.

BBB+/Stable Specialty 46%

Burlington Stores Inc.

BB+/Stable Off-price 45%

Tapestry Inc.

BBB-/Positive Luxury 43%

Nordstrom Inc.

BB+/Stable Department store 41%

Carter's Inc.

BB+/Stable Apparel 40%

VF Corp.

A-/Stable Apparel 39%

Kohl's Corp.

BBB-/Stable Department store 38%

Chinos Intermediate 2 LLC (J. Crew)

B-/Positive Specialty apparel 36%

Dollar Tree Inc.

BBB/Stable Discount 36%

Foot Locker Inc.

BB+/Stable Specialty apparel 35%

Rent-A-Center Inc.

BB-/Stable Specialty 35%

Ralph Lauren Corp.

A-/Negative Apparel 33%

Capri Holdings Ltd.

BBB-/Stable Luxury 33%

Under Armour Inc.

BB/Stable Apparel 33%

Qurate Retail Inc.

BB-/Stable Specialty apparel 32%

Dollar General Corp.

BBB/Stable Discount 31%

TJX Cos. Inc.

A/Stable Off-price 30%

Hanesbrands Inc.

BB/Negative Apparel 28%

The Gap Inc.

BB/Positive Specialty apparel 27%

Kontoor Brands Inc.

BB/Stable Apparel 26%
Source: S&P Capital IQ.

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Andy G Sookram, New York + 1 (212) 438 5024;
Secondary Contacts:Sarah E Wyeth, New York + 1 (212) 438 5658;
Lauren E Slade, Centennial + 1 (212) 438 1421;
Research Contributor:Akanksha Bijalwan, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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