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Welcome to the ShopperScape™ Newsletter December 2005 PREDICTIONS Expect solid retail sales growth of 5.0% to 5.5% this holiday season. Anticipate that this year's somewhat restrained shoppers, especially those in the Down and Middle Markets, will need to be motivated by promotions to propel their shopping. Plan for much of holiday spending to occur after December 25th as gift card popularity rises. Clothing, planned as gifts among almost two-thirds of shoppers, still beats gift cards as the top gift choice. Expect heavy traffic at Wal-Mart and Target as shoppers seek the most bang for their buck this holiday. Value department stores also rate high on lists of where shoppers plan to spend this season. Watch for not just a boost in online ordering this season but more multi-channel shopping as consumers move among bricks, slicks and clicks to optimize shopping trips. Expect retailers to heavily promote DVDs as far fewer consumers plan to purchase the category this year than last year, which was a better summer movie year. HOT OFF THE PRESS Solid Holiday Spending Plans Retail Forward's forecast for solid 5.0% to 5.5% retail sales growth during the holiday period is a bit below last year's results. The latest ShopperScape™ findings concur—some consumers plan to show a bit more restraint this holiday season vs. last year. Overall, shoppers plan to spend an average of $671 on holiday gifts this year (Figure 1). Down Market shoppers plan to spend an average of $314 on presents. On the other end of the income spectrum, Up Market shoppers plan to spend more than three times that amount. A combined 15% of all shoppers are planning to spend more this year on holiday gifts compared to last year, down slightly from 16% at this point during the 2004 holiday shopping season (Figure 2). Nearly half (46%) of all shoppers plan to spend about the same this year on holiday gifts compared with a year ago. That percentage is up slightly from last holiday. Down Market shoppers will be watching their budgets more closely than the other income segments. Half of all Down Market shoppers plan to spend less or not buy holiday gifts at all this year. Figure 1 How much do you plan to spend on holiday gifts this year?   Source: Retail Forward ShopperScape™.   Figure 2 Which of the following categories best describes how much you think you will spend on holiday gifts this year (for holidays including Christmas, Chanukah/Hanukkah, or Kwanzaa) compared to last year?           Source: Retail Forward ShopperScape™.   DECEMBER CONSUMER OUTLOOK Up and Down Markets Push Index Up for the Holidays Consumer spending intentions continue to rebound from the early-autumn falloff, according to Retail Forward's Future Spending Index. The index increased to 97.3 in December—the highest level since September-from 96.8 the month before (Figure 3). "The key underlying theme in this month's results is the sustained recovery in job security from the hurricane-induced jitters," said Steve Spiwak, an economist with Retail Forward. "That positive trend means retailers can expect shoppers to continue opening their wallets during the all-important December shopping month." The Future Spending indices for the Up and Down Market segments each increased in December to the highest levels since summer. At the same time, the Middle Market index slipped modestly. Buoyed by better job prospects and investment worth, the Future Spending Index for Up Market households (incomes greater than $75,000) improved to 97.3 in December from 94.9 in November. And even as home buying moderated in this segment, refinancing activity jumped as more affluent homeowners rushed to lock in low mortgage rates and tap into rising home values. The index for Middle Market households (incomes between $22,500 and $75,000) moderated to 93.3 this month compared with a 95.1 reading last month. While these households are more optimistic about job security and incomes compared with the year-ago period, that was offset by heightened concerns about debt loads and weaker home buying in this income group. Down Market households (incomes less than $22,500) have become more upbeat about jobs, incomes and investments. Moreover, home buying in this segment continued at a brisk pace. Consequently, the Down Market Future Spending index rose nearly three points to 109.5 in December. Figure 3 Retail Forward Future Spending Index™ (December 2003 = 100) Source: Retail Forward ShopperScape™. The Retail Forward Future Spending Index combines households' current assessments of key drivers of spending across income segments, including the job situation, incomes, investments, debt levels, home buying, and seasonal factors to produce a forward-looking indicator of spending for the coming month. SHOPPER INSIGHTS Santa's Most Coveted Gifts Clothing, accessories and shoes category is set to be the most popular gifts among all income segments. Gift cards/gift certificates are running a close second, while toys/dolls/games, books and pre-recorded media and electronics will still be a focus for many shoppers. Nearly two-thirds (64%) of all shoppers plan to buy clothing, accessories or shoes this year for gifts. While this percentage is highest among Up Market shoppers (73%), more than half (56%) of all Down Market shoppers will be spending part of their budget on these items (Figure 4). The convenience of gift cards/gift certificates has captured the attention of more than half (55%) of all shoppers. Up Market shoppers are the most likely to take advantage of the ease and simplicity of giving gift cards. Toys/dolls/games are the third-most-popular gift item this year (47%); books are fourth (42%) followed closely by pre-recorded music or video tapes, CDs or DVDs (41%). With the latest version of the Xbox on the market in time for the holidays, more than a quarter (26%) of shoppers will be on the hunt for video games, gaming systems and related accessories. Figure 4 What types of gifts do you plan to buy this holiday season? Source: Retail Forward ShopperScape™   Discounters Dominate With energy prices higher than last year, most shoppers will stretch their holiday budgets by searching for the lowest prices. Retailers that offer the most bang for the buck should benefit. Sixty-one percent of all shoppers plan to do their holiday shopping at discount stores/supercenters. That is far ahead of value department stores (38%), which should generate the second-largest crowds (Figure 5). Cyberspace can also expect many visitors as shoppers seek out the best deals. Thirty-seven percent of all shoppers plan to go online for holiday gifts. That proportion is being boosted by Up Market shoppers, nearly half (49%) of whom plan to shop online this holiday. And despite the struggles of mall-based retailers, one-quarter of all shoppers plan to visit a traditional department store during the holidays. Specialty retailers that focus on electronics, apparel, sporting goods or home furnishings can expect to be visited by between 10% and 15% of shoppers. Figure 5 Where do you plan on doing your Holiday shopping? Source: Retail Forward ShopperScape™ Multi-channel Apparel Shopping on the Rise Even though stores still rule as the venue of choice for shopping the tactile clothing, shoes and jewelry categories, online shopping is on the rise. Online shopping is now more popular than catalog shopping especially among coveted Up Market shoppers (Figure 6). Figure 6 Please indicate where you have shopped for clothing, shoes or jewelry for yourself, whether or not you made a purchase, in the past 6 months. Source: Retail Forward ShopperScape™ ShopperScape™ findings also reveal that many shoppers are pre-shopping online but preferring to purchase in stores where they can check out the merchandise in person (Figure 7). Furthermore, relatively fewer shoppers who are browsing catalogs place the order through the retailer's call center. Instead they go to stores or online to make the purchase. This behavior differs by market: Up Market shoppers are more likely to complete their customer journeys online while Down Market shoppers are more likely to go to stores. Figure 7 Source: Retail Forward ShopperScape™ Additional shopper insights on multi-channel retailing in apparel will be discussed in a detailed report to be released in early 2006 as part of the Softgoods program of the Retail Forward Intelligence System™. PURCHASING PLANS Going Up: Santa's Most Coveted Gifts Spark Increase in Category Purchases With the holiday season upon us, shoppers are focusing their spending on the most popular product categories related to Santa's most coveted gifts (Figure 8). Specifically, toys/dolls/games, pre-recorded video tapes, music, CDs or DVDs, men's casual tops, books, women's accessories and men's athleticwear will all see an increase compared to last month. However, only greeting cards will see an increase from last year, another indication of a slightly more restrained holiday season. Figure 8. Going Up Source: Retail Forward ShopperScape™. Going Down: Expect Home Improvement/Hardware to Decline With more shoppers focusing their spending on gifts this month, the emphasis will be taken off the home. Popular fall, spring and summer purchases such as fertilizer or grass seed, paint, building materials, auto supplies and plumbing supplies will see a decline in the upcoming month. Year-to-year downshifts are most pronounced in paint and auto supplies (Figure 9). Figure 9. Going Down Source: Retail Forward ShopperScape™. POINT OF VIEW E-Retailing Shopper Update "Online retailers are poised to have a happy holiday: Most primary household shoppers are planning to shop for and buy gifts online. Retail Forward forecasts e-commerce sales growth of 27% in the fourth quarter. To maximize their holiday sales, online retailers need to deliver a non-frustrating shopping experience. Two-thirds of online shoppers report having been frustrated by their online shopping experiences in the past six month. Shoppers' most frequent reaction to those frustrating experiences? Leaving the frustrating site to shop somewhere else for the same or similar item." Mary Brett Whitfield, Director, Retail Forward Intelligence System™ For more information on the E-Retailing Shopper Update, October 2005 or the Retail Forward Intelligence System™ call Kathy Clarke at 614-355-4009 or email her at kclarke@retailforward.com. What's Retail Forward ShopperScape™? Retail Forward ShopperScape™ focuses on today's consumers and their shopping behaviors. Retail Forward ShopperScape™ has been fielded since November 2003 to a sample of 4,000 consumers each month. The survey gathers timely, up-to-date information about where consumers shop and what they buy. Retail Forward ShopperScape™ is administered through TNS/NFO's online household panel, weighted based to be representative of U.S. households. For more information, call Kathy Clarke at 614-355-4009 or visit http://www.retailforward.com and select ShopperScape™ under Product & Services in the navigation bar located at the top of the home page to view sample reports and learn more about how to access ShopperScape™ information. 700 Ackerman Road Suite 600 Columbus, Ohio 43202 Voice: 614 355 4000 Fax: 614 355 4059 http://www.retailforward.com To subscribe to the Monthly ShopperScape Newsletter™ or other Retail Forward newsletters, click here. If you would like to stop receiving the ShopperScape™ Monthly newsletter, please edit your content preferences here.