Analysts and economists alike are watching retail forecasts and consumer spending with a cautious eye. China’s volatility, Brazil’s deteriorating economy and the stronger U.S. dollar all attribute to waning global economic growth.
For retailers, these are indicators of what’s ahead. This month, Walmart cut its 2015 Q4 sales forecast drastically, citing a number of external factors as reasons for the inaccurate numbers. This not only sent a ripple effect of shock across the entire retail industry, but it reveals some of the external factors retailers should be looking at when creating 2016 sales forecasts.
The U.S. unemployment rate has been consistently falling, standing now at 5.1% (U.S. Census Bureau), which is considered by many economists to be pretty close to full employment. How does this impact retail sales next year?
As the job market grows, wages grow with it. Retailers are feeling the pressure to raise wages for entry and mid-level employees. Wages for non-management employees have been in upward growth since mid-2013. Walmart is a prime example of this. According to the Bureau of Labor Statistics, wages in Walmart’s category of retail are up by 4% since 2014. This trend is significantly impacting Walmart’s margins, and the increased competition for workers will similarly impact other brick-and-mortar retailers.
Competition has always been fierce in the retail industry, especially around the holidays, but the dichotomy between online and in-store retailers has never been greater. In fact, through the second 2015 quarter, general merchandise retail sales were down 0.4% from the same time last year – the first year-over-year decline since the 2008-09 recession. In contrast, e-commerce retail sales over the same period were up 14.4%, an annual growth rate that has held steadily in the double-digits for the past few years. (U.S. Census Bureau)
While some of this can be attributed to a no-inflation environment in the U.S., it’s clear that online retailers like Amazon are eating the brick-and-mortar store’s lunch as well.
Currency movement often plays a pivotal role into missed economic forecasts, but this year in particular, the world has experienced huge currency fluctuations. At one point, China’s economic volatility brought the yen down by roughly 3.2 percent in just over two months, reports the Currency Exchange. In addition, Brazil’s escalating economic crisis had the real at an all-time high of 4.2 percent this year. This volatility, coupled with a stronger U.S. dollar, has greatly impacted price fluctuation and consumer confidence in regions originally identified as ripe for growth. However, it also reveals stronger, more confident consumer spending in the U.S., where the dollar is strong and wages are high.
Taking these factors into account will guide 2016 retail sales and demand forecasts.
In sum, the impact of these external factors goes far beyond retail. While there’s a lot left to be determined about how next year’s retail sales will pan out, one thing is certain: companies must take into account how today’s external factors will impact sales forecasts in 2016. Such economic data, when incorporated into a company’s internal business metrics, can help guide companies into creating more accurate forecast predictions.