Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the fourth quarter, or October through December, and peak at Christmas. According to the Census Bureau's Monthly Retail Trade Report, the most seasonal retail markets are electronics, appliances, clothing, sporting goods and online retail. The least seasonal retail markets include automobiles, furniture, gas stations and building materials.
General merchandise stores, such as Walmart, Costco and Target, that sell many types of products tend to see large seasonal swings as well. January and February tend to be the worst months for retail when most consumers are saving after holiday binges and poor weather limits activity.
The Christmas Effect
Christmas is the season of retail shopping and investing. Some retailers see 30-40% spikes in sales just from the beginning of November to the end of December. Companies have adjusted over the years and now have seasonal hiring spurts and overstock their shelves, never wanting to run out for shoppers.
Collaborative Planning, Forecasting and Replenishment
Retail managers have to plan their budgets and their product offerings around seasonal influences. An easy example is a clothing retailer switching from long-sleeve shirts and jeans to short-sleeve shirts and shorts when the weather starts to warm.
This seasonal navigation is sometimes referred to as collaborative planning, forecasting and replenishment, or CPFR. Companies that do this best are rewarded with higher sales, lower surplus inventory and fewer markdowns.
Operating Expenses and Working Capital
The required amount of working capital for retailers increases during peak seasons. This is because operating expenses also go up, such as extra labor, change in store hours, increased customer demands and the introduction of new product lines.