Last year, real estate investors were very worried about retail sales going into the holiday season. Between health concerns keeping shoppers out of stores and economic uncertainty, many experts were predicting a sluggish 2020 holiday season, and with that came the threat of additional store closures to fuel an already troublesome pandemic-induced trend.
But last year's holiday sales came in higher than expected. Many consumers opted to spend more money on gifts and physical items than on travel and experiences, largely due to the coronavirus outbreak and the safety concerns it produced.
This year, consumers are expected to increase their spending even more in time for the holidays. Retail sales are poised to rise 7% to 9% this season, according to recent projections from Big Four accounting firm Deloitte.
All told, sales could reach up to $1.3 trillion. And that's on top of last year's 5.8% increase, which beat Deloitte's projections.
At face value, this is good news for retailers -- and also for shopping center and mall REIT (real estate investment trust) investors who want to avoid another wave of store closures. But investors should keep their expectations in check going into the holidays.
Why holiday sales could still disappoint
Many consumers are in a much better financial position heading into the upcoming holiday season than they were in 2020. At this point, the national jobless rate is at its lowest level since the start of the pandemic. And while weekly unemployment claims have risen in recent weeks, they're still considerably lower than the numbers we were seeing at the same time last year.
Furthermore, many families are enjoying a cash infusion, thanks to the recently enhanced Child Tax Credit. Not only was the credit boosted for the 2021 tax year, but half of it is being paid in monthly installments that began in July and are set to continue through December. Those payments will leave many families in a stronger position to tackle holiday expenses.
There's also the fact that many Americans are vaccinated against COVID-19 to consider. During last year's holiday season, vaccines weren't yet available to the masses, so many people stayed out of stores to protect their health. Many shoppers, at the time, shifted to e-commerce seamlessly. But old-school shoppers may prefer to make their holiday purchases at brick-and-mortar locations -- something that could work to retailers' advantage this time around.
Still, retailers may face a few roadblocks this year. For one thing, the delta variant is still causing surges of COVID-19 cases all over the country. This could lead to further restrictions in hot spots and economic uncertainty across the board. Some consumers may opt to spend more conservatively as a result.
Furthermore, supply chain issues are already putting retailers in a precarious position for the upcoming seasonal boom. There's concern that inventory won't reach stores in time for the holiday crowds, which could result in lackluster sales numbers.
Real estate investors should also realize that while holiday sales might pick up, much of that movement might be attributed to digital sales. In fact, Deloitte projects that e-commerce sales could grow 11% to 15% year over year, hitting $218 billion. That's great for retailers, but it doesn't exactly make the case to keep stores open for the long haul.
An important number of weeks coming up
Retailers routinely rely on a holiday revenue boost, and this year, they need a strong holiday season to compensate for a generally sluggish 2020. Whether Deloitte ends up being on point with its projections is yet to be determined. Much will depend on the trajectory of the pandemic over the next few months and the extent to which it impacts the economy.
Real estate investors should take comfort from projections that retail sales are expected to rise, but they shouldn't be shocked if final numbers come in lower than anticipated.