Retail: 'Hope" Doesn't Work

I’m sure you’re all hearing the same news reports we are…that retailers are ‘hoping’ for a positive holiday season. The NRF (National Retail Federation) came out with its forecast for a 2.8% boost in Holiday Sales, which is not huge, but is certainly not a slam dunk either.


The reality is that when we YouTube the NRF’s forecast accuracy, we see that it missed plan (it overestimated) by about 1.6% on average over 10-years. But that only tells half of the truth. When we’re in a good economy, such as ’03, ’04, ’05 and ’06, the NRF is usually fairly accurate with its forecast. That’s kind of like saying that the Las Vegas weatherman usually gets the forecast about right the month of August (100+ with zero humidity).


But when the economy sees meaningful fluctuations (like when no one caught wind of the seriousness of that East Coast snowstorm in Oct), forecasts tend to be off very materially.


As outlined in the chart below, the NRF missed by 660bps in 2008 on the downside, and underestimated by 290bp in what was a positive snap-back in 2010.


3Q12 just capped off the fifth consecutive quarter where inventories grew faster than in sales in retail. So could we see upside to the NRF’s 2.8%. It’s possible, but we feel strongly that it would be at the expense of margin. Remember…all-in, (nearly) every last unit of apparel will be sold by the end of the season. It’s simply a function of how far down the pricing curve the retailers will need to go in order to ring the register.


Retail: 'Hope" Doesn't Work - NRF Analysis

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