Analysts and experts are looking optimistically to modest retail holiday sales gains to cap off a tough year, but like most of the rest of 2020 it will be a tale of two channels as stores remain a question mark during some fall pandemic surges and consumer wariness.
“The demand is there, with the offset of Black Friday in stores expected to be lower than usual,” said Viraj D’Costa, an ecommerce forecast analyst with Forrester. “So, we’re in a transition. Instead of people waiting in line for doorbusters, there will be a line of cars around the lot waiting to pick up for curbside orders.”
“Black Friday this year is morphing into Black November,” said Ken Perkins, president and founder of consultancy Retail Metrics. “That’s been happening, and it’s even more pronounced this year, with sales pulled into October.”
Markers Heading North
Overall economic indicators continue to point hopefully north, including a 3.9% gain in consumer spending in August vs. the previous year, excluding motor vehicle and gasoline sales, up 0.1% from July per the U.S. Census Bureau, and an 8.4% August unemployment rate, down from 10.2% in July, from the Bureau of Labor Statistics. Also the consumer confidence index from the Conference Board increased in September to 101.8, up from 86.3 in August when it saw a decline.
Still, uncertainty nags. Forrester is projecting relatively flat overall retail holiday sales, D’Costa said. Online, however, is projected to grow 20% to 30% over 2019, a huge bump from the 12.7% increase last year as ecommerce demand continues to soar. For the full year, Forrester is calling for ecommerce sales to increase 18.5%, reaching a 20.2% penetration rate in North America.
Deloitte has a somewhat rosier retail holiday sales prediction, calling for an overall spending increase of 2.5% over 2019, with ecommerce sales rising 25% to 35% from November through January, totaling $182 billion to $196 billion.
The divergence of store and ecommerce heading into the 2020 holidays is stark in some of Forrester’s projections of annual spend in popular gifting categories: Health and beauty (up 23% online, down 8.2% in stores), consumer electronics (20% and -23.3%), fashion (19% and -33.7%) and home furnishings (16% and -15.2%).
A second round of federal stimulus may be in mired in beltway gridlock, but a historically high savings rate for U.S. consumers is a very positive indicator. From January 2010 to February 2019, the average personal savings rate was 7.3%, according to the Bureau of Economic Analysis, but from March through August it jumped to 20.3%. This is due in large part to lack of usual spending on travel, lodging and live events, as well as economic uneasiness.
“While we are in a recession, Americans are relatively flush with cash as we go into this holiday season,” D’Costa said. “Bank accounts are not looking as bad as we thought, we had a historically large stimulus, and people have not been out spending as much as historically.”
Countervailing that, however, is a stark number: $30 billion in absolute potential lost income for Americans in every month there is no extension of unemployment benefits, D’Costa said, a figure that is shrinking as more return to work.
Holiday Margins Challenged for Retailers
Perkins said margin pressure in retail will be more pronounced this year due to many added costs related to COVID-19, including sanitization efforts, increased holiday hiring and exploding fulfillment and delivery costs. All of this will equal greater separation between “haves and have nots” in retail, he said, with big boxes, discounters and home improvement chains winning while department stores, footwear, teen apparel and specialty shops will be more challenged.
“We’re also seeing somewhat of a trade-down of consumers moving to discount from upper- and mid-level retailers, although it’s not as great as in the 2007-2008 recession, when it was significant and many looking to stretch every dollar.”
Savings and coupon site provider RetailMeNot said its consumer polling showed that Amazon’s Prime Day, now scheduled for Oct. 13-14, is expected to be the largest retail holiday sales event day of the 2020 holiday season, cited by 67% of respondents, edging out Cyber Monday (65%) and Black Friday (57%). The company received 3,400 responses from U.S. adults in two August surveys. As in past years, major retailers are fighting back with their own promotions on Prime Day.
While shoppers told RetailMeNot they were completing 46% fewer shopping trips than in 2019, and 52% chose less busy times to avoid crowds, there were strong spending signals echoing the positive economic indicators cited by Forrester. Two-thirds of respondents said they plans to spend the same amount or more this holiday season “to maintain a sense of normalcy and family tradition,” said Sara Skirboll, a shopping and trends expert with RetailMeNot.
Three-quarters of respondents to the RetailMeNot survey said they preferred to shop online in 2020, with the same number saying they planned to complete all their shopping as soon as possible. Thirty-nine percent said they were buying gifts earlier than normal to avoid shipping delays and stock-outs, both expected to be common occurrences this year.
“Eighty percent said they planned to take actions to save, with 71% saying price was the biggest factor in their holiday shopping decisions,” Skirboll said. “Sixty-four percent told us they continue to research deals before purchasing holiday gifts.”
Opportunities to Claw Back Sales
Perkins said this unusual year represents an opportunity for retailers to make up retail holiday sales lost in past years to entertainment gifting and spending such as travel, lodging, entertainment, sports and health clubs, but it requires them to make offerings more experiential and personalized based on real-time analysis of shopper data.
“If they have the data on what they’re buying they can make smarter online offers,” he said. “So many gifts are last-minute decisions, so retailers need to transition typical items to more entertainment-oriented experiential gifts. It’s a good opportunity if can get this right.”
Perkins noted that all of this requires significant technology investments that cut into the bottom line initially, which is why many retailers were slow to the game and quickly trying to make it up in 2020. “Still, this is a good year to claw back and make some sales,” he said.