More Shoppers Intend to Buy, but U.S. Holiday Sales Likely to Remain Flat

James Russo, V.P., Global Consumer Insights, The Nielsen Company

While more consumers are expected to head into the holiday season with the intent to buy compared to last year, expect the shopping to be subdued and value-focused. The Nielsen Company predicts consumer holiday spending to closely reflect 2009 spending with flat dollar sales at approximately $89 billion, and flat to declining unit sales, down 0.15 percent. This year’s holiday forecast follows two previous seasons where Nielsen’s predictions on unit and dollar sales fell within 1.5% of actual results.

Consumers are concerned about the jobless recovery and managing their personal finances. As a result, they are closely planning their spending and continue to reduce their shopping trips while placing more emphasis on value. Fewer shopping trips make every retail interaction critical this holiday season and retailers need to turn this increased, but restrained, optimism into sales.

Taking into account more than 500 category-level forecasts of core items sold across the food, drug and mass channels, including Walmart, coupled with Nielsen’s September 2010 survey of close to 25,000 demographically representative U.S. households, below is a list of what retailers and manufacturers can likely expect this holiday season:

Making a List . . . and Buying

More consumers plan to buy this holiday season, with 36 percent telling Nielsen they will spend less, compared to 42 percent in 2009.

Holiday Winners and Losers

Value retailers will attract shoppers, but online retailers will see the biggest surge. Unlike 2009, consumers express moderate interest in spending more across a broad spectrum of retail channels, such as consumer electronic, pet, liquor, department, convenience/gas and home improvement stores. Consumers plan to spend less this year in mass merchandiser stores, while plans for spending in supercenters, club, grocery, toy, book and office supply stores remain flat.

Who Shops Where?

Consumers earning $70K, as well as those earning $100K or more, will drive online store visits. Dollar store visits will be driven by consumers with incomes $50K and less, which is an increasingly higher income shopper than previous years. All income segments will be attracted to mass merchandisers, supercenters and club stores.

Earn Less, Plan to Spend More

Increases in consumers’ holiday spending is driven by lower income consumers, with six percent of those households earning less than $20K planning to spend more, compared to four percent of higher income households ($100k+) planning to do so.

What’s Hot

Nielsen predicts a strong season for technology products and gift cards, with some possible upside surprises in discretionary items such as apparel, toys, videogames, books and even vacations, especially among upper income households ($100K+).

What’s Warm

Discretionary items such as jewelry and DVDs are forecasted to see a slight uptick, as consumers express a desire to spend more on these items. What’s not? Consumer spending on sporting goods, CDs, cookware, and bed and bath items will be flat.

Consumers Buying and Watching

Consumers are spending a considerable amount of time in front of the TV during  the weeks surrounding the holidays, with the week between Christmas and New Year’s ranked as the top week for overall live television viewing, using a DVD player and playing video games. The week of and the two weeks following Thanksgiving rank among the top ten weeks for men’s TV viewing, a consideration for retailers to take into account when planning their media buys.

Consumers’ desire for value continues into this year’s holiday season. In this new normal however, consumers have redefined value. Value is not about price, it’s about the balance between price and benefits. Retail channels offering a clear value proposition and those that focus on consumers’ desire to plan as they manage personal finances, such as online stores, will do well. More and more, it’s about capitalizing on the interactions with an increasingly savvy—and at times disloyal—consumer. Those value propositions tailored around benefits beyond price will resonate with consumers.