Source: Wells Fargo

• In what undoubtedly will be remembered as one of the most challenging and transformative years for most retailers, we are forecasting holiday sales will increase 9.0% in 2020, which would be the largest increase on record (Figure 1). That is not to say that things are fine for all retailers, (they are not), nor is it to say that consumers are in excellent financial shape (they are not, particularly not toward the lower end of the income spectrum). However, a forced thrift that has curtailed spending in the service sector and cancelled travel plans frees up income for more spending on gifts. After the anxiety and stress of a year defined by the virus, natural disasters and a divisive election, we suspect holiday sales will also benefit from a yearning for comfort and normalcy, which many consumers may associate with having a few more gifts under the tree.
• A record increase in the midst of a pandemic is hardly the most intuitive outcome, but consider that our measure of holiday sales already sits comfortably above the level of sales reached last year. In order to get anything short of a well-above-average increase you would need to assume massive declines in the remaining months of the year; declines in the ballpark of what we saw during April lockdowns. In fact, even if you take the worst monthly declines on record going back to 1992 for October (-1.6%), November (-1.4%) and December (-3.1%), and use those as placeholders for the next three months, holiday sales would still come in a strong 4.9% this year.
• Remarkably, we are not even penciling in a banner year in terms of month-over-month growth rates. Our 9% forecast looks for monthly changes over the next three months that are below what we typically see historically. Perhaps the best way to put it is that our forecast of a 9% year-over-year increase requires a 2% decline in seasonally adjusted sales through the end of the year from where we are as of September.
• We have also considered a more pessimistic forecast, which has holiday sales still up at a solid 6.9% versus last year. In this forecast, we again utilized our bottoms up approach, but assumed that sales are pulled extensively into October and November and then fall off a cliff in December. This forecast requires a nearly 5% decline in sales through the end of the year from where we are as of September. Although, this is not our base case scenario, it presents a reasonable outcome, in our view. We will update the numbers as the data come in over the next few months. Even if we get a blowout October, however, we would not revise our forecast higher because of this concern about demand being pulled forward.