Every year, the market waits on holiday season sales results to confirm the retail economy health. The 2019 holiday season is shorter due to Thanksgiving falling late in November, cutting off six potential shopping days. You could argue the timing of Thanksgiving is irrelevant as companies seem to begin marketing earlier and earlier, but for the sake of this article, we will assume a traditional holiday shopping calendar; November - December.

Consensus Estimates

Shorter season or not, Adobe Analytics & the National Retail Federation (NRF) are projecting strong consumer spending for 2019. The NRF estimates an increase in sales of 3.8% - 4.2% for a total spend of $729B. To provide historical context, the five year holiday sales average growth rate is 3.7% and holiday sales have increased every year, except 2008, since 2002 regardless of when Thanksgiving fell. Purchases during the holiday season represent roughly 20% of retail annual sales across all relevant consumer companies.

Does the Economic Environment Support These Projections?

Ultimately, retail consumer spending habits are influenced by how secure consumers feel about their paycheck, employment, and financial situation. Assessing housing market activity and car purchases give us good insights into the pulse of the consumer as big ticket items can be the ultimate telltale sign for purchasing sentiment.

The retail consumer is in a strong position. Home and vehicle sales are good, unemployment is low, wages are growing, inflation is modest, and borrowing is cheap. While there has been an uptick in consumer credit use, this debt is appropriately backed by household income. Consumer spending models that incorporate lag variables of last month & last holiday season spending also point to continued growing sales, further enforcing the spending momentum despite economic ups and downs we have faced in the first three quarters of the year.

Online Shopping

According to Adobe Analytics, online shopping is expected to rise by over 14% this year. The largest benefactors of the expected increase are e-commerce giants. Although not named, we can read between the lines of who these may be: Amazon (Tii:AMZN), eBay (Tii:EBAY), Walmart (Tii:WMT), Target (Tii:TGT). The expected jump in revenue of these giants during the last few months of the year compared to smaller e-commerce companies is 65% to 35% respectively. Even at 35%, smaller online retailers cannot be ignored. The NRF expects 20% of all holiday sales to be made online while consumer polls indicate they plan to do 56% of their holiday shopping online.

What Consumers are Saying

A picture is worth a thousand words...

All charts are courtesy of the NRF

Ultimately, we expect to see a strong consumer retail economy over the 2019 holiday season. Keep in mind, as a savvy investor who may be looking to increase or overweight retail consumer exposure in your portfolio, sales do not automatically equate to corresponding company returns or even a good stock pick. Part of choosing one stock over another is research on which company can manage sales growth sustainably, trickling down as a positive impact to their bottom line.