Holiday Sales Outlook: Modest Growth, Online Downturn in Q1 2006

Nov 16, 2005 11:47 PM  By

With gas prices and consumer confidence being what they are, it’s unlikely that merchants are expecting bountiful sales growth this year, and industry experts now confirm that they won’t get it. Here’s a roundup of holiday sales predictions from the major research and consulting firms:

EMarketer anticipates a “strong, but not exceptional,” online sales season, with fourth-quarter revenue reaching $26.2 billion, up 21.9% over last year. Shoppers shifting their purchases online will drive much of the gain. Special promotions such as free shipping will proliferate this year, as will personalized marketing messages and customized shopping experiences.

According to Retail Forward, despite the economic side effects of Hurricanes Katrina and Rita, the 2005 holiday season will be a fairly healthy one for key retail sectors. Still, sales growth won’t match last year’s. Retail Forward’s forecast is for 5.0% to 5.5% year-over-year growth in the fourth quarter for critical measures of holiday sales. Online sales will reach $27 billion in the fourth quarter, compared to $21.5 billion in the 2004 holiday season.

CyberSource reports that in third-quarter 2005, merchants using CyberSource payment processing solutions achieved a 42% year-on-year growth in credit card transactions, exceeding the 38% growth they had reported the quarter before. CyberSource expects a “holiday selling period with good online sales momentum” as higher gas prices drive shoppers to online rather than brick-and-mortar channels. Online sales will peak Dec. 12–19.

Forrester Research Inc. estimates a conservative sales total of $18 billion in online sales this holiday season, a 25% increase from last year. The first quarter of next year, however, doesn’t look so good. Forrester advises online retailers to prepare themselves for (1) widespread offline redemption of gift cards purchased online, (2) attracting customers initially through free shipping offers but losing them later as holiday orders arrive late (only 57% of holiday purchases were delivered on time last year), and (3) the harsh reality that this winter’s heating bills will be $700 higher on average, leaving consumers less cash to spend.