Holiday-Shopping Prediction Season: The Most Wonderful Time of the Year

It’s that time of the year! No, not Halloween and not even Thanksgiving, one of my favorite holidays of the year. Rather, with its official 2014 Holiday Shopping forecast, the National Retail Federation kicked off the excitement, anticipation and mental fatigue associated with year-end holiday shopping.

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I know what you’re thinking: We are only a few days into October and I still have yet to get my holiday candy! Trust me, I feel your pain. But what you have to realize is depending on the firm forecasting the holiday shopping season, it can run from November to January. Donning that perspective, the 2014 Holiday Shopping season kicks off in exactly three weeks.

The NRF forecast isn’t the first one we’ve received, but it is the one most-watched and, therefore, bears reviewing. The official 2014 forecast calls for holiday sales to reach $616.9 billion, a 4.1% increase over November and December 2013. For context, holiday sales in up 3.8% for 2013, just below the NRF’s 3.9% forecast.

Two quick things to point out in the NRF’s 2014 forecast. First, the 4.1% figure compares to the 10-year average of 2.9% holiday sales growth. Second, the NRF’s forecast is only for sales in November and December, which means sales in January are excluded, even though most retailers include that month when tallying their holiday sales figures. Other forecasts, like one from Deloitte, which calls for a 4.5% increase in holiday spending, spans the November to January time frame. It might not seem like a huge deal, but one more month can make big difference, and we have to remember which forecast is using what time frames in order to keep the data straight and compare apples to apples.

There are other holiday sales forecasts out there, including one from AlixPartners that sees holiday shopping a little cooler that Deloitte or the NRF. That outlook sees 2014 holiday spending up 3.8% for the last two months of the year.

The funny thing about forecasts is it can be rather difficult to hit the bull’s-eye with an exact figure. From my perspective, I’m far more concerned with the vector and velocity of the forecast – vector being the direction of the forecast, velocity being the rate of change associated with the forecast. In this case, the vector is up and the velocity is faster than it’s been over the last 10 years.

That’s where I become a little skeptical.

Per the September employment report, there was no wage growth and CardHub reported the average household credit card debt exiting the June quarter rose to $6,800 – a new high since the financial contagion. Other data point to a looming retirement pain point: Either people under saved, or in some cases, had a complete lack of retirement savings.

While the bulls will point to the drop off in gas prices, we have to remember there have been significant increases in the protein complex, coffee, cocoa and other inputs. Cotton, however, has seen a sharp drop in price and that could help offset softer-than-expected revenues for key cotton users like Hanesbrands (NYSE:HBI), Joez Jeans (NASDAQ:JOEZ), Ralph Lauren (NYSE:RL), and VF Corp. (NYSE:VFC).

To me the forecast that makes more sense, particularly when we factor in the fact there are still more jobs cuts – thank you Time Warner (NYSE:TWX), Hewlett-Packard (NASDAQ:HPQ) and others – is the one from Pricewaterhouse Coopers that calls for cautious consumers to remain concerned with their disposable income. In PwC’s survey, it found 72% of respondents see a same or worse environment when compared to last year, and 84% plan to spend the same or less this holiday season than they did in 2013. Tallying up its results, PwC’s bottom-up findings point to households spending $684 on average this holiday season, down in 2014, down 7% from $735 in 2013.

Digging deeper into the survey is something even more illuminating. PwC estimates people generally making less than $50,000 per year account for 67% of American shoppers, and are expected to spend $377 on average this holiday season. By comparison, those making more than $50,000 per year are expected to spend $978 on average per household this holiday season. That would suggest opportunity for companies like The TJX Companies (NYSE:TJX) and Ross Stores (NASDAQROST) as well as higher end ones like William-Sonoma (NYSE:WSM), Apple (NASDAQ:AAPL), Nordstrom (NYSE:JWN) and others.

Across all the forecasts published thus far for 2014 holiday sales, both online shopping and gift cards are expected to shine. That should benefit companies like (NASDAQ:AMZN), Visa (NYSE:V), MasterCard (NYSE:MA), and United Parcel Service (NYSE:UPS). The other is the continued growth in gift cards and that likely means another year of strong results for Apple and Starbucks (NASDAQ:SBUX) among others.