Slower Holiday Sales Forecasted

by Alan Wolf -- TWICE, 9/7/2006

Columbus, Ohio — After two robust years of fourth quarter growth, overall retail sales are expected to slow to a more moderate 5.5 percent clip this holiday season, according to market research firm Retail Forward.

The forecast includes home improvement stores, catalogs, online sales and the key retail sectors known as GAFO, comprised of department stores, big box discounters and warehouse clubs; apparel stores; furniture, home furnishings and consumer electronics stores; and other specialty stores.

The projected 5.5 percent growth is lower than the 7.2 gain last holiday, and the smallest increase since 2002, when holiday sales gained 2.8 percent.

While Retail Forward senior economist Frank Badillo attributes the slowdown to higher interest rates, a cooling housing market and steeper fuel prices, he cautions that those factors will likely have an even greater impact on retail sales in the first half of 2007.

The research group also predicts growth at consumer electronics and appliances stores will slip slightly from last year, and that sales at big box discounters and warehouse clubs, both one-stop shopping formats, will continue to outpace most other retail channels again this holiday season as high gasoline prices compel consumers to consolidate shopping trips.

Online retail sales are projected to surpass $33 billion in the fourth quarter of 2006 compared with $27 billion last holiday season, representing a year-over-year increase of nearly 23 percent. “E-commerce will continue to represent the fastest growing retail sector this holiday season, propelled by retailers becoming more aggressive online and consumers growing more comfortable with virtual shopping,” Badillo said. The increase is also attributable to rising Internet access and the impact of high gasoline prices.

Despite the strong growth, however, online sales will only account for a 3 percent share of all retail sales.