The holiday forecast this season: cloudy with a high chance of a downpour of sales predictions.

Heading into the biggest shopping period of the year, at least 10 entities, ranging from consulting firm Bain to an assortment of retail consultants and academics, come out with their own predictions of how much retail sales will be up or down during November and December.

The forecasts can vary dramatically, underscoring the differences in methodology and the questionable value to businesses of paying attention to them at all. This year so far, numbers from four different groups for the expected increase in sales from last year's holiday season range from 3% to 4.1%.
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A one percentage-point difference between the forecasts isn't as important as the fact that all the forecasts are lower than last year's gain of 5.8%, according to Department of Commerce numbers, says Michael Niemira, chief economist for International Council of Shopping Centers.

"You have to compare whether it's an acceleration, a deceleration, or about the same," he says.

Forecasting isn't a science, says Kathy Grannis, spokeswoman for National Retail Federation, which estimates a 4.1% sales increase this year. "It's a way for the industry to gauge what to expect."

Forecasts take into account a varying degree of factors. The National Retail Federation considers sales from previous months, the housing market, consumer confidence, weather and employment, among other things. This year is the first time the organization's prediction includes online sales.

Into the new year

Other groups, including consulting firm Deloitte, include expected January sales in their predictions.

"We've noticed holiday shopping continues into January," says Alison Paul, the head of Deloitte's retail division. "We feel it's important to represent activity such as gift card sales and late holiday shopping."

Deloitte estimates holiday sales will be up between 3.5% and 4% this year, including online sales.

Retail consultant Craig Johnson applauds that the NRF "finally added online" shopping to its holiday forecast. He boasts that his forecasts, which have always included Web sales, are "superior to what others do."

"We believe we are the most accurate over the years," says Johnson, whose clients include institutional investors and have included retailers, mall companies and manufacturers.

It can be hard to discern who's the most accurate when everyone is making a different prediction, though. Johnson and retail consultant Britt Beemer have both claimed they make the closest estimates. But in 2010, of 10 holiday forecasts compiled by Johnson that year, Beemer's was the most negative at 0.5%, and Johnson's was the most positive at 4.5%. Holiday retail sales were, however, up 5.2% that year, according to the Commerce Department's numbers for November and December, excluding cars, car parts, gas and restaurants.

Johnson's prediction was closer than most in 2010 and 2011, but he was way off in 2009 when he predicted a 2.4% increase in sales, and they were only up 0.4%, when compared with the Commerce Department's November and December retail sales numbers.

Johnson, whose forecasts have typically been far more optimistic than most, bases his numbers on Commerce Department data and observations from his "field research team" in stores and malls.

Still, the actual number that organizations put out as the estimated increase in sales isn't "terribly important," says Niemira. The International Council of Shopping Centers predicts a 3% increase in chain store sales this holiday season.

"It's the messaging that's more important," he says. "Are things going to be stronger, about the same or weaker, and why? Where are the risks?"

For all the hoopla around releasing a holiday sales forecast, the different predictions may only slightly affect retailers.

The forecasts come out months after retailers have ordered merchandise for the holiday season, which limits their usefulness. But some stores could increase orders of certain items if it was clear consumer spending was headed for a surge.

"There may be some incremental tweaks to inventory levels based on the forecasts, but only on the margins, I suspect," says retail analyst Ken Perkins of Retail Metrics.

The amount of variation in the predictions could also lead to changes in a retailer's discount strategy.

"For the most part, what all these numbers are telling us is it's really not clear what's going to happen," says Chris Christopher, an economist for IHS Global Insight. "If the retailers are a little uncertain, they don't want to be caught with excess inventory."

Christopher predicts "discount creep" around Halloween this year, when retailers will "start discounting sooner so they can get people through their doors."

USA Today