The holidays might be less merry for retailers than expected
When the National Retail Federation released its holiday forecast in early October, it seemed like the season was going to be awesome with a capital A. Word was that holiday sales figures would get a 4.1 percent boost this year, a step above 2013's 3.1 percent growth. Data from Google, meanwhile, found that roughly a quarter of Americans were planning to start their shopping before Halloween. Insane, but great for retailers.
It's starting to seem that those figures might have been a little optimistic.
In the weeks since, luxury companies like LVMH and Burberry have warned that the retail environment is not looking so hot in the months ahead, and Amazon also had some not-so-pleasant news to deliver on Thursday in its third quarter earnings statement: Sales during the upcoming fourth quarter are expected to grow between 7 and 18 percent (somewhere in the range of $27.3 billion to $30.3 billion). That's 2.5 percent lower than was previously forecast, Amazon CFO Tom Szkutak said on Thursday's earnings call.
For Amazon, that kind of growth is slow for the holidays. Last year, the e-commerce company's fourth quarter sales grew 20 percent to $25.59 billion relative to 2012, which was both a smaller jump than in years past and also short of analysts' expectations for a $26.08 billion season. So you see then how Amazon's projection that growth will max out at 18 percent and could be as low as 7 might send investors scurrying. As of Friday morning, share prices had dropped by 8 percent.
While a study from Shop.org suggests that online sales will grow between 8 and 11 percent for the holidays, e-commerce companies like Amazon may have some particular challenges when it comes to sustained growth year over year.
According to Sucharita Mulpuru, senior analyst at Forrester Research, online holiday shopping is driven by Thanksgiving promotions and the Christmas deadline -- that is, the deadline for making sure that everything arrives by Christmas. Brick-and-mortar retailers have been able to cut into online sales by opening on Thanksgiving. And if more and more shoppers wait until the last minute to order their Christmas presents, overburdened e-commerce companies will only be able to accommodate a limited number of deliveries.
"The network doesn't have the capacity to take on much more than it did last year even though e-commerce is growing," Mulpuru writes in an email. "All of those issues have huge problems for the industry. In some ways, it's approaching a terminal velocity during Q4 unless we can somehow accommodate shipping more packages to people in late December."
Whatever the outcome for retailers, shoppers are the party that's going to benefit the most. Target recently decided to offer its customers free shipping until December 20 in an effort to beat out competitors like Amazon for consumers' attention. As the NRF points out, customers are extremely price-sensitive. Retailers are going to have to cater to that if they want to boost their sales numbers, particularly if they're nervous about the season to begin with.
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