The holiday forecast this season: cloudy with a high chance of a downpour of sales predictions.
Headinginto the biggest shopping period of the year, at least 10 entities,ranging from consulting firm Bain to an assortment of retail consultantsand academics, come out with their own predictions of how much retailsales will be up or down during November and December.
Theforecasts can vary dramatically, underscoring the differences inmethodology and the questionable value to businesses of paying attentionto them at all. This year so far, numbers from four different groupsfor the expected increase in sales from last year's holiday season rangefrom 3% to 4.1%.
A one percentage-point difference between the forecasts isn't asimportant as the fact that all the forecasts are lower than last year'sgain of 5.8%, according to Department of Commerce numbers, says MichaelNiemira, 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 forNational Retail Federation, which estimates a 4.1% sales increase thisyear. "It's a way for the industry to gauge what to expect."
Forecaststake into account a varying degree of factors. The National RetailFederation considers sales from previous months, the housing market,consumer confidence, weather and employment, among other things. Thisyear is the first time the organization's prediction includes onlinesales.
Into the new year
Other groups, including consulting firm Deloitte, include expected January sales in their predictions.
"We'venoticed holiday shopping continues into January," says Alison Paul, thehead of Deloitte's retail division. "We feel it's important torepresent 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.
Retailconsultant Craig Johnson applauds that the NRF "finally added online"shopping to its holiday forecast. He boasts that his forecasts, whichhave always included Web sales, are "superior to what others do."
"Webelieve we are the most accurate over the years," says Johnson, whoseclients include institutional investors and have included retailers,mall companies and manufacturers.
It can be hard to discern who'sthe most accurate when everyone is making a different prediction,though. Johnson and retail consultant Britt Beemer have both claimedthey make the closest estimates. But in 2010, of 10 holiday forecastscompiled 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'snumbers for November and December, excluding cars, car parts, gas andrestaurants.
Johnson's prediction was closer than most in 2010 and 2011, but he wasway off in 2009 when he predicted a 2.4% increase in sales, and theywere only up 0.4%, when compared with the Commerce Department's Novemberand December retail sales numbers.
Johnson, whose forecasts havetypically been far more optimistic than most, bases his numbers onCommerce Department data and observations from his "field research team"in stores and malls.
Still, the actual number that organizationsput out as the estimated increase in sales isn't "terribly important,"says Niemira. The International Council of Shopping Centers predicts a3% increase in chain store sales this holiday season.
"It's themessaging that's more important," he says. "Are things going to bestronger, 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.
Theforecasts come out months after retailers have ordered merchandise forthe holiday season, which limits their usefulness. But some stores couldincrease orders of certain items if it was clear consumer spending washeaded for a surge.
"There may be some incremental tweaks toinventory levels based on the forecasts, but only on the margins, Isuspect," 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.
"Forthe most part, what all these numbers are telling us is it's really notclear what's going to happen," says Chris Christopher, an economist forIHS Global Insight. "If the retailers are a little uncertain, theydon't want to be caught with excess inventory."
Christopherpredicts "discount creep" around Halloween this year, when retailerswill "start discounting sooner so they can get people through theirdoors."