Halloween Spending to Hit an All-Time High

It takes more than carving a pumpkin to get ready for Halloween in many homes. Image source: Wal-Mart.

Halloween used to mean homemade costumes or cheap store-bought outfits, and setting a jack-o'-lantern on your porch. Now, however, bed-sheet ghosts have given way to more elaborate efforts, while home decorations have moved from folksy to fancy inflatables, animatronics, and other pricey decor.

And while recently it seems like retailers including Wal-Mart (NYSE: WMT) and Target (NYSE: TGT) skip right from summer to Christmas, they have actually made Halloween a more important retail holiday.Those chains, along with grocery stores, seasonal pop-up shops, and online retailers have pushed the late-October holiday to new sales heights. Halloween spending hit a record $8 billion in 2012 and is set tobeat that number this year, according to the National Retail Federation (NRF).

The NRF's annual survey, conducted by Prosper Insights and Analytics, shows that consumers will spend $8.4 billion on Halloween purchases this year, the most in the survey's 11-year history and up from $6.9 billion last year. That breaks down to an average of $82.93 per consumer, an increase from $74.34 last year, with more than 171 million Americans expected to in some way celebrate Halloween this year.

"After a long summer, families are excited to welcome the fall season celebrating Halloween," NRF President and CEO Matthew Shay said. "Retailers are preparing for the day by offering a wide variety of options in costumes, decorations and candy, while being aggressive with their promotions to capture the most out of this shopping event."

What are people buying?

Walking into a Target or Wal-Mart, it's clear that the retailers expect people to buy costumes and candy, with some money going to decorations. That's backed by the NRF survey, which shows that costumes will lead the way with $3.1 billion being spent, but only 67% of consumers will spend on that category.

Nearly all Halloween participants (94.3%) will spend some of the $2.5 billion expected to be spent on candy. Also, 70% of consumers will buy decorations (with $2.4 billion being spent) and 35.4% will shell out some of the $390 million expected to be spent on greeting cards.

Where are people buying?

Traditional retailers face increasing competition for Halloween dollars, according to NRF. Nearly half (47%) of shoppers plan to visit discount stores to buy their Halloween-related items this year. Also, 36% will visit a specialty Halloween/costume store, up from 33% last year, and 26% of customers will visit grocery stores/supermarkets. Department stores are only expected to get 23% of customers while 22% say they will shop online.

In addition, much as the Christmas season has become one that starts earlier and earlier, Halloween shopping has moved up on the calendar.

"Consumers are eager to celebrate Halloween, especially given that eight in 10 Americans will shop by mid-October. That is the highest we have seen in the survey history," Prosper Insights Principal Analyst Pam Goodfellow said. "Americans will enjoy taking advantage of early bird promotions both online and in-store as they kick off the fall season."

What does this mean for stores?

Halloween has stopped being an afterthought on the way to Christmas, but competition for the dollars spent on the holiday have dramatically increased. This is an area where price matters, but so do selection and service.

For example, price may drive the choice of candy a person hands out, but someone who has decided to dress as sexy Darth Vader for the holiday needs the right costume pieces no matter the cost. Halloween has grown and since it's the one time it's OK for your kids to knock on a neighbor's door to ask for free candy, it has also become a season of retail opportunity.

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Daniel Kline has no position in any stocks mentioned. He lives in a high-rise where his 12-year-old son may be the only child, so he does not expect to hand out much Halloween candy. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.