FTI Consulting Inc. (FCN), the global business advisory firm, projected a 3% increase in holiday sales in its recently-released 2010 Retail Report. The upside is expected to come on the back of year-over-year improvements in income growth and household wealth. Another reason for the uptick in holiday sales is the impending resolution of tax uncertainties regarding the extension of the Bush tax cuts.
FTI believes that some portion of these tax cuts will likely be extended for a year or two. The subsequent preservation will result in additional holiday spending among the high income earners, as they are expecting a tax hike next year. On the contrary, the failure to extend the Bush tax cuts to middle and lower income families, though unlikely, would adversely impact holiday spending, as these households have been expecting tax rates to hold steady.
The report also identified online retailing as the best performing segment during the recession and projects that online retail sales will approach $200 billion next year and more than double its market share of U.S. retail sales by 2020. Online sales will likely account for almost 13% of U.S. retail sales in 2020 versus 6.3% currently. This represents a compounded average annual growth rate that is three times faster than the growth of U.S. retail sales.
The majority of future growth in online sales will come from huge store-based categories, as well as mobile commerce. Despite the huge success of some Web-only sites, such as Amazon.com Inc. (AMZN), the multi-channel model has played a dominant role in generating online sales. According to the FTI report, the Soft line, such as apparel, which saw moderate sales declines in 2008–2009, will outperfom the pre-recession sales level in 2011.
Though consumer sentiment is still faltering, recent year-over-year increases in monthly retail sales are indicative of a positive turnaround in consumer discretionary spending. The Baltimore-based advisory firm believes that this will lead to a modestly pleasant holiday season for most retailers.
Spending by higher income households are growing faster than the lower income group. Hence, mid-size and smaller chains, which lack scale advantage, geographic diversity or financial resources will lag large chains. Large retailers are faring better and intend to return to the pre-recession level of operating margins and returns on capital.
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