Gordon Brothers has forecasted U.S. retail sales for this upcoming holiday season, predicting a modest increase of 1.2% to 3.5% relative to last year amid economic and political uncertainty.
While certain economic indicators are looking up, including a 50-basis point rate cut, stronger than expected consumer confidence, and inflation falling to its lowest level in more than three years, there is increased uncertainty around the election, rising unemployment, stock market volatility and weak manufacturing data pointing to a slowdown.
In addition to the mixed economic and political signals around consumer spending leading into the holiday season, which can account for 25% to 35% of a retailer’s annual sales based on the firm’s client analysis, the calendar is not in retailers’ favor this year.
“Not only is the U.S. election concerning consumers and increasing advertising costs, but Thanksgiving is late in the 2024 calendar year so there is nearly one less week between Black Friday and Christmas,” Alexa Driansky, managing director at Gordon Brothers, said. “As a result, retailers will feel even more pressure this year due to a major holiday sales time crunch.”
The retail industry has navigated powerful headwinds over the past few years, including market volatility, inflation, labor pressures and global supply chain snarls following a global pandemic that forced businesses to completely rethink how they operated.
“During this upcoming holiday season, retailers must weigh maintaining their margin while selling through inventory in an uncertain backdrop,” Rick Edwards, head of North America retail at Gordon Brothers, said. “Pricing and promotional cadence are critical to this.”
As consumers enter the 2024 holiday season amidst an election year and economic uncertainty, they remain eager to spend but are seeking value, convenient and seamless experiences.
With Coresight Research reporting over 4,500 stores have already closed this year, retailers and mall operators must think about how to drive traffic. There remains a strong dichotomy between malls and shopping centers with full occupancy continuing to attract consumers and those with vacancies struggling to attract foot traffic.
“Our advice to retailers is to stay flexible by leveraging omnichannel strategies, enhancing loyalty programs and offering customers flexible delivery options,” Al Williams, co-head of North America real estate services at Gordon Brothers, said. “At the same time, it is crucial retailers proactively control costs, particularly real estate occupancy and labor expenses, while maintaining diligence in overall spending, and those that strike this balance are best positioned to thrive in a competitive and unpredictable environment.”
As lenders think through this holiday season, they should monitor their borrowers’ financial performance, inventory levels and receipt flow closely. Appraisal values can drop quickly if a retailer does not have enough liquidity to bring in seasonally appropriate go-forward inventory, and the inventory mix shifts to clearance and low recovering goods.
In many cases where borrowers are only subject to annual appraisals, post-holiday appraisals can be mid-cycle and net orderly liquidation values may not reflect a deteriorating collateral base appropriately.
