NRF projects consumer spending to rise during November, December

An increasingly strong economy and the popularity of some hot product trends should deliver a robust holiday shopping season this year in the U.S., but several Arkansas cities fall in the bottom tier of spenders, according to projections from WalletHub.

The National Retail Federation predicts Americans will spend $655.8 billion in November and December, excluding auto sales, gas and restaurant sales. That represents a 3.6% rise in year-over-year consumer spending. In comparison, spending has increased annually by 2.5% on average over the past 10 years. Experts say consumers might be loosening the purse strings because their economic situation has improved.

“Despite some of the policy speeches or debate speeches that we’ve seen in the last few months, I think overall the U.S. economy is doing pretty good, and people are more in position where they can spend a little bit,” said Bryan Aguiar, business professor at NorthWest Arkansas Community College in Bentonville.

Some areas of the country are still struggling, and recovery from the 2008 recession took a while, he added. His colleague, adjunct professor Andrew Tucker, also senior director of strategy and new business development for consumer products at Nickelodeon, said a stronger employment rate and a solid economy have contributed to more shopping, in spite of some challenges.

“With the dynamic of new leadership from the presidential election, people tend to hold back a bit,” Tucker said, “so we could see a little softening but then a quick rebound.”

He also pointed to the popularity of tech-driven products as a reason for higher consumer spending.

“We’re kind of at a perfect time in our economy, where people are working, and there’s so much innovation that is driving consumer demand. It’s a perfect match whenever you look at that supply and demand matrix,” Tucker said.

Popular Innovations
Wearable technology, including smartwatches and activity trackers, is one example of a rapidly growing consumer trend that might help drive sales this holiday season. The global wearable technology market was valued at $26 billion in 2015 and is estimated to reach $171 billion by 2025, according to The Insight Partners, an India-based market research company.

“Athleisure” apparel — fashionable athletic clothes worn outside the gym in everyday life — is another retail category that seems to be resonating with consumers. NPD Group estimates the industry is worth $44 billion in the U.S., up 16% from 2015. Morgan Stanley predicts it will reach $83 billion in 2020. Tucker pointed to brands that are building on the “athleisure” movement, including Lululemon, Under Armour, Nike and Adidas.

“It’s a great trend, and it’s just getting better and better,” he said.

The popularity of active wear can have a significant effect on holiday spending because clothing and accessories remain the most popular holiday gifts, bought by 61% of shoppers, according to the NRF.

The technology and entertainment categories are also major players for consumer spending during the holidays, Tucker said. According to the NRF, 44% of shoppers will buy books, CDs, DVDs, videos or video games as gifts, and 30% will buy electronics. Top sellers for Bentonville-based Walmart U.S. during Black Friday sales included televisions, video games and systems and drones, according to the retailer.

“There are so many strong trends that the consumers are demanding,” Tucker said. “I’m anticipating this to be one of the stronger holiday markets that we have seen in a long time, from all facets of retail.”

If anything, Tucker is concerned retailers are under-stocked with variety from suppliers for the holiday season. And that’s not a bad problem to have.

“The good thing about that is, sometimes not maximizing consumer demand has a positive hangover demand in the market that can drive more consumption three to six months into the new year,” Tucker said.

Holiday Spending Per Capita
The NRF estimates individual consumers plan to spend $935.58 each during the holiday shopping season this year.

WalletHub, a financial services website, used an algorithm to look at 570 cities and rank them by the average estimated holiday spending budget per individual. The top five cities with the biggest estimated holiday spending budgets are all in California or Texas. No. 1 is Palo Alto, Calif., spending an estimated $2,821 per individual, followed by League City, Texas ($2,362), Sugar Land, Texas ($2,334), Sunnyvale, Calif. ($2,203), and Pearland, Texas ($2,080).

In Arkansas, Springdale, Little Rock, Fayetteville, North Little Rock, Jonesboro and Fort Smith, were ranked on the list, landing in the lower half for spending. The holiday spending budget per person for Springdale was $590, Little Rock was $576, Fayetteville was $493, North Little Rock was $589, Jonesboro was $473 and Fort Smith was $417.

Tucker believes one reason Arkansas cities were toward the bottom is because they have fewer upscale retail shopping options, so residents spend less. He pointed specifically to Northwest Arkansas.

“Compared to other areas, we don’t have the higher-end retail shops. But as Northwest Arkansas continues to develop and we have more retail outlets, then it will go up,” he said.

Income Plays into Spending
In part, the WalletHub ranking takes into account income. Aguiar said that’s one potential reason why Arkansas cities didn’t rank as high. Arkansas’ average median household income is about $41,000, whereas in California the average is about $61,000. In Palo Alto for example, median income is $126,771, according to 2014 data from the U.S. Census Bureau.

In Texas, median income is $53,000, and in League City the median is $91,000.

Other factors in WalletHub’s proprietary algorithm are unknown, so Aguiar warns against putting too much stock in the budget estimates.

“We don’t exactly know the secret sauce,” he said.

Also, the model is based on assumptions. For instance, only people with a low debt-to-income ratio and enough emergency expenses for six months saved up were included, which might skew representation of the cities. In fact, only 22% of Americans with savings have enough for six months of expenses, and 29% have no savings whatsoever, according to a 2015 BankRate survey.

Within the WalletHub research, Springdale has the highest holiday spending estimate but the lowest per capita income of the six Arkansas cities included.

While this result could be tied to the exclusion of the city’s most financially strapped individuals, Tucker also points to the demographics of Springdale as another possible explanation. Thirty-three percent of Springdale’s population is under 18, and 10% are under 5, according to 2015 Census estimates. The Arkansas average is 24% under 18 and 7% under 5, according to that data.

“There might be more children under 16 that love to have a nice, elaborate Christmas,” Tucker said.

And that’s where behavioral economics come into play.

“Holiday spending decisions are based more on emotion than economic necessity,” Aguiar said. “You know, we want the kids to have a good Christmas, or we want our family to have a good Christmas. So if we do have that credit available, that might be a time where we use it and probably overspend.”

WalletHub estimates Americans will have $80 billion in credit card debt by the end of the year, and 39% of consumers will use credit cards to pay for holiday gifts, according to the NRF.

“That’s just part of being human,” Aguiar said. “I can easily sit here and bring people in and say, only live within your means, don’t spend too much, credit cards are bad. But then when I leave and I see my daughter’s look on her face, I’m going to buy her that bike, whether we have to charge it or whatever.”