Falling gas prices raise holiday spending prospects

By Melissa “Missy” Enaje

Santa might have to work overtime this holiday season as retail sales surged in November by a stronger-than-expected 0.7 percent, up more than 5 percent from a year ago, the Commerce Department reported. A sharp drop in energy prices is giving consumers more spending power and they appear to be using it.

“Lower gas prices are an added plus, especially for families who are still trying to regain ground lost to the Great Recession,” Diane Swonk, chief economist at Mesirow Financial, wrote in a blog post. “The healing we have been waiting for is finally taking hold.”

While U.S. consumers are taking advantage of the extra cash, they aren’t necessarily opening their wallets in person, but rather turning on a computer screen and clicking “buy.”

“Part of what’s happening here is that online over the last couple of years is finally reached a scale or it’s having a more visibile impact on retail sales,” Frank Badillo, vice president and chief economist at Kantar Retail said in a Bloomberg Intelligence webinar. “These online retailers now represent about 10 percent or more of those core retail sales.”

Electronic commerce, or e-commerce, is the buying and selling of goods and services over an electronic network. More consumers are skipping the long lines at the mall and instead surfing the web for deals. Not only are consumers browsing online, but they’re also spending almost half of their total average budget online.

“I buy like literally everything online and I work in downtown Chicago, on Michigan Avenue and I don’t walk into any stores,” said Jeffery Brewer, 23, who works at The Shops at North Bridge.

Fitting into the growing trend of mobile shoppers, Brewer just purchased his New Year’s outfit using his mobile device during his lunch break. Besides personal convenience, but he also found brick-and-mortar stores were “too overwhelming.”

Shop.org, a division of the National Retail Federation with a network of more than 600 member companies in the retail industry, said it projected online sales in November and December to reach $105 billion, a growth of between 8 percent and 11 percent over last holiday season.

Options are allowing consumers to compare competition in the online retail market, with 72 percent of shoppers checking over three websites before actually making a purchase.

With mobile devices also gaining traction as a shopping platform, smartphone users are engaging in what is being called “showroom behavior” in which consumers enter a brick-and-mortar store in order to see the desired products then complete the transaction online. This applies to 44 percent of mobile consumers, according to research by Comscore, a technology company that measures behaviors in the digital world.

Passing the torch

It’s no secret that women are traditionally the main purchasing power in American households, influencing an estimated 80 percent of the product choices being made, according to figures by Chicago consulting firm Female Factor. But their male counterparts are gaining traction.

“The shift in consumers shopping online compared to last year was greater for men than women,”said Laura Hubbard, senior manager at the Consumer Electronics Association.

Men are more likely to make purchases on mobile devices, with 22 percent of men making a purchase on their smartphones last year compared with 18 percent of women, according to a report by the Nielsen Company. In fact, 40 percent of men said they would “ideally buy everything online,” compared with 33 percent of women, according to a report by Business Insider Intelligence.

CHART

 

Males prefer the digital atmosphere

Millenial males spend more time online per week than any other demographic. That makes them more likely to hear about company offerings through social media outlets such as Facebook, Twitter or blogs.

One market that male consumers seem to have a hold on is electronics.

“If I buy electronic things, online is better for me,” said Faisal Aljlajil, 21, who prefers Amazon as his go-to-site for electronic purchases.

A Nielsen study showed that the millennial male spends an average of $2,200 a year in key categories. They shop five times a year for electronics and spend slightly more per shopping trip.

“There is a lot of newness in electronics, but there is not much newness in apparel,” said Poonam Goyal, senior analyst at Bloomberg Intelligence, in a late-November analyst briefing. “So we do think that some apparel spend could be directed towards electronics and that can obviously impair spending at apparel retailers.”

Black Friday Disappointed

Shoppers decided to stay home this year. The National Retail Federation predicted that 140.1 million customers would participate, but only 133.7 million customers showed up, meaning 6.4 million customers opted out. Part of the reason, analysts said, was that shoppers took advantage of holiday discounts as early as September.

But macro trends bode well for the remainder of the holiday season. U.S. consumer sentiment rose to the highest level in eight years, according to the Thomson Reuters/University of Michigan preliminary report for December.

Besides lower gas prices at the pump, an improving job outlook is helping consumers gain confidence in the economy. November’s employment report surprised economists with a larger-than-expected addition of 321,000 jobs. The unemployment rate remained at 5. 8 percent.

What we see in the overall sales trends is that they are being kept relatively healthy through the holidays by macro conditions, particular in terms of what we’re seeing in the job gains,” said Badillo, Kantar Retail’s vice president.

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