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Inside A Target Corp. Store On Black Friday
Shoppers on Black Friday in 2015 Photograph by Bloomberg via Getty Images

Christmas Sales Are Expected to Be Strong This Year

Oct 04, 2016

Finally.

U.S. retailers can expect a strong holiday season this year, buoyed by income gains and rising consumer confidence according to the National Retail Federation.

The industry group forecast holiday season sales—excluding car sales, gas and restaurants—would rise 3.6% to $655.8 billion, well above the 10-year clip of 2.5% growth and better than the 3% rise for the 2015 Christmas period. And online business should be a big help, rising as much as 10% during the period.

The holiday season is crucial for many retailers, making or breaking the year for some chains and generating as much as 30% of sales.

2016 has proven to be a challenging year so far, particularly for stores like Macy's, (m) Kohl's (kss) and Target (tgt), which had to deal with sales declines last quarter. Shoppers are moving online and also away from apparel, making it tough going for many such chains. A notable exception has been Walmart (wmt), which has fared well thanks to improved customer service, fewer out-of-stock items, and an improved e-commerce site.

And as Walmart and Amazon.com (amzn) have shown so far this year, retailers will engage in pricing warfare to outdo one another: Target for one has said it needs to re-emphasize its low prices in its marketing given the competitive environment. And weak traffic at hundreds of malls is hurting the like of Macy's and Gap Inc (gps).

But at least shoppers are in a better mood heading into the holiday season. "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,” NRF chief economist Jack Kleinhenz said in a statement, adding that anxiety about the outcome of the election could weigh on shoppers' mood.

And once again, retailers will have to fight extra hard with Amazon to give shoppers a reason to come to stores, or at least to their websites. Last year was the first year more shoppers went online on Black Friday than to stores. This year eMarketer expects digital sales to surpass 10% of total holiday season revenue for the first time, while a recent study found that nearly half of all online shopping searches begin on Amazon.

In a separate forecast, PwC estimated holiday spending would increase 10% during the 2016 season, though stores would struggle to get their share since shoppers will be spending proportionately more on experiences and travel.

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