Holiday Sales Forecasts: Black Magic or Science?

Holiday sasles promotions will start even earlier this year, say forecasters.

— -- The nation's retailers, anticipating what forecasters believe will be a lackluster holiday shopping season, are launching big sales promotions earlier than ever before. But how accurate are forecasters' predictions?

A lot is riding on the accuracy of the predictions economists make about how much merchandise shoppers will scoop up between Thanksgiving and December 31: holiday sales traditionally account for up to 40 percent of a store's annual sales.

How accurate are these predictions?

The business of making them has become so crowded in recent years that Joel Bines, a managing partner with consulting firm AlixPartners, calls it "a cottage industry." Over the past 10 years, he tells ABC News, a wide variety of advisory firms that benefit from publicity have realized that "making predictions is a good way to generate headlines." A cadre of service firms and suppliers, he says, now make them.

Their quality, he and other experts say, depends entirely on the assumptions on which they're based, the methodology used and the reliability of data. The results range between science and black magic.

"At this point, all eyes are on the holidays," says AlixPartners' September newsletter. Referring to the welter of predictions flying around, it alludes to "all the navel-gazing and statistic-slinging that will soon start."

"Based on that calculus, we are predicting that, this year, holiday retail sales will increase between 4.1 percent and 4.9 percent." His prediction last year was 3.9 percent--exceeding the actual 3 percent.

ShopperTrak, which collects data from some 60,000 retail locations worldwide (about 80 percent of those in the U.S.) expects holiday sales to be up 2.4 percent from last year. ShopperTrak's founder, Bill Martin, tells ABC News his forecasts excludes online sales and take into account only those from brick and mortar stores.

ShopperTrak's prediction last year was an increase of 2.5 percent. Its 2011 prediction was for an increase of 3 percent, versus an actual increase of 4 percent.

"We capture data," he says. "Others take a survey of what consumers believe will happen."

Kleinhernz at the NRF says he uses a model that takes into account what's going on in the macro economy. Its components include monthly census retail sales reports, employment data, income data, credit card use, retail sales of food and beverage, and an estimate of e-commerce. He also factors in any geopolitical uncertainties that might cause shoppers to hold back.

How did NRF do last year? "We underestimated," says Kleinhernz. "We were close, but we didn't hit the nail on the head." In 2012 NRF's projected forecast was that holiday sales would increase 4.1 percent, versus the 3 percent final figure.

He views as suspect any predictions based on private, proprietary data. "It's important they be based on public data sets," he says. "With private data, how are you ever going to know if that data's right or wrong?"

There may be predictors dazzled by "Christmas trees and lights," but he isn't one of them. "I take great pride in our work. We don't always get it right, but we do the best we can."

Meanwhile, retailers are already gearing up for the season.

Kmart has aired its first holiday commercial—100 days before Christmas. The company, in a statement to ABC News, says it isn't so much jumping the holiday gun as it is trying to do shoppers a favor: "Customers can plan in advance in order to take advantage of layaway for holiday purchases."