2016 has been a relatively flat year for retail stocks, with major funds like the SPDR S&P Retail ETF (XRT - Free Report) gaining just 2% year-to-date. However, as the holiday shopping months approach, several key factors appear ready to propel this year’s seasonal sales to the best they’ve been in quite a while.
Research from the National Retail Federation (NRF) predicts that holiday sales, excluding autos, gas, and restaurant sales, will increase 3.6%, which is “significantly higher” than the 10-year average of 2.5% and above the seven-year post-recovery average of 3.4%.
Furthermore, a recent report from PricewaterhouseCoopers (PwC) indicates that the average shopper will spend 10% more this holiday season, bringing average spending to $1,121 each.
Retailers are already starting to prepare for the increased business by bringing on more seasonal employees. On Thursday, Amazon (AMZN - Free Report) announced that it would add 120,000 seasonal positions, a 20% increase from last year, while Target (TGT - Free Report) has said it will be boosting its temporary holiday workforce by 15%.
With retailers already preparing for more shoppers spending more cash, check out these three factors behind this year’s positive holiday trends:
1. Starting Early
While the NRF’s holiday sales growth predictions technically only count sales in the months of November and December, the trade group also expects this year’s Halloween season to be impressive.
According to the NRF’s “Halloween Headquarters” data, average Halloween spending this year is expected to be $82.93 per person, up from last year’s $74.34. That figure would bring total spending to $8.4 billion, an all-time high in the history of the NRF Halloween survey.
2. Hipster Millennials
Millennials tend to get a lot of the blame for changing shopper behavior in ways that have hurt many traditional retail outlets, but PwC has identified “hipster” millennials as the key group driving this year’s holiday sales.
“Hipsters—upwardly mobile, college-educated millennials in enclaves such as Austin, Brooklyn, Oakland, and Portland—will spend $500 more this season than consumers overall,” the PwC report said.
3. Healthy Economy
While the future of the U.S. economy still seems relatively uncertain, solid employment figures and rising wages have put some extra cash in the hands of the average shopper ahead of the holidays.
“Consumers have seen steady job and income gains throughout the year, resulting in continued confidence and the greater use of credit, which bodes well for more spending throughout the holiday season,” said NRF Chief Economist Jack Kleinhenz.
Predictions are no guarantees, and even the optimistic NRF is able to point out some potential hiccups in this year’s numbers.
“Increased geopolitical uncertainty, the presidential election outcome and unseasonably warm weather are the main issues at play with the greatest potential to shake consumer confidence and impact shopping patterns,” Klenhenz added.
Despite some potential roadblocks, both the PwC and NRF reports agree that retailers could be in store for an impressive year. According to Kleinhenz and the NRF, consumer spending power is “resilient” and “should never be underestimated,” which means investors don’t want to underestimate what could be a prime moment for retail stocks.
You are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. Many of these companies are almost unheard of by the general public and just starting to get noticed by Wall Street. They have been pinpointed by the Zacks system that nearly tripled the market from 1988 through 2015 with a stellar average gain of +26% per year. See these high-potential stocks free >>