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12.27.12

Holiday Sales Disappoint, E-Commerce Roars Ahead

From Hurricane Sandy to the fiscal cliff, this may have been the worst year for holiday sales since the recession. But e-commerce merchants are feeling quite merry.

Was this a disappointing holiday season? Early data that looks at the whole of holiday shopping through Dec. 24 says yes. MasterCard SpendingPulse reported retail sales in the two months before Christmas rose only .7 percent this year from last year, well below analysts’ estimates of between 3 and 4 percent.

MasterCard SpendingPulse measures activity in discretionary retail sales (clothing, department-store items, appliances, furnishing, luxury items) from the MasterCard system and combines that data with survey data and other publicly available information to come up with a comprehensive estimate for retail activity across the entire payment system. 

The story of disappointing holiday sales is one part regional, one part national, one part specific to holidays, and one part about the entire economy. Michael McNamara, vice president of Master Card SpendingPulse, says that the Northeast and the Mid-Atlantic, which include nearly the entire area affected by Sandy, represented about 24 percent of consumer spending. Those regions “took an absolute beating in early November,” which put an early dent in holiday spending. While the rest of the country saw holiday spending increase 2 to 4 percent from 2011, the Northeast and Mid-Atlantic fell off by 1.4 and 3.9 percent, respectively. “You have to go back to 2008. These are some of the weaker numbers since the recovery began,” says McNamara.

E-commerce spending, which had been growing by 15 to 17 percent over the past 18 months according to SpendingPulse, also slowed in early November, because of widespread power outages from New Jersey to Connecticut following Sandy. This also shows up in the data collected by Chase Holiday Pulse, which tracks e-commerce activity from the 50 largest merchants using Chase’s payment systems and compares them from the same day’s activity year-over-year. Although it doesn’t provide an estimate or forecast of retail activity as a whole, Holiday Pulse can show trends from 2011 to 2012. 

The Holiday Pulse data shows a 26.4 percent increase in sales on Oct. 29, the day Sandy lashed the East Coast and Mid-Atlantic, compared with the year before. But on Friday, Nov. 2, at which point a large chunk of the Mid-Atlantic had been experiencing blackouts since Monday, sales fell by 10.6 percent from the previous year. All told, McNamara says, without the slowdown caused by Sandy, holiday sales growth would be closer to 2.5 to 3 percent.

The second hit to holiday sales wasn’t specific to any one region or any one mode of shopping. Starting in early December, measures of consumer confidence started to decline precipitously. The University of Michigan/Thomson Reuters consumer sentiment index dropped 11.9 percent from November to December (PDF), after rising steadily since hitting a low in August 2011.  According to the most recent release, the highest level ever of survey respondents “spontaneously mentioned hearing about prospects for higher taxes when asked to identify what economic news they had heard.” The possibility of taxes, especially taxes on wages, going up substantially absent a deal on the fiscal cliff took a real chunk out of consumer confidence.

McNamara was willing to attribute the subsequent soft sales to this decline in confidence. “At the same exact time, both of those events started to happen,” he said. “You could say it’s circumstantial evidence, but when it looks like a duck, it’s a duck.”

This overall softening in sales was anticipated in a projection by ShopperTrak, a Chicago-based research firm. Its final sales projection, released Dec. 19, predicted a 2.5 percent increase in holiday retail sales, down from its 3.5 percent projection in September. ShopperTrak also measured a 4.4 percent annual decline in retail foot traffic.

“These are some of the weaker numbers since the recovery began.”

While this year might be disappointing for all retail sales, the Chase Holiday Pulse data suggests a shift in holiday shopping—to holiday e-commerce, especially late in the year. One of the most intriguing trends in the Chase Holiday Pulse data was how the annual change in daily volume starts to take off in mid-December. On Dec. 16, the year-over-year change was only 6.1 percent; on Dec. 20, the increase was 61.8 percent. On Dec. 22, e-commerce sales were up 108.9 percent from the same day the year before. And on Dec. 23, the Sunday before Christmas Eve and the last full-blown day of the holiday shopping season, Chase measured a year-over-year increase of 124 percent through its payment network.

Although we don’t know the composition of these sales, the huge increase that gets bigger as Christmas approaches suggests that these weren’t Amazon deliveries that that were supposed to arrive on Christmas Eve or Christmas Day. Instead, these look like last-second, truly digital gifts like e-books, gift cards, or apps that can be delivered instantly. If that’s the case, then expect the e-commerce shift to only accelerate going forward.

Merry app-mas!