The pent-up demand from consumers had to wane at some point, and that time could be now—just in time for the all-important holiday selling season.
Data from Customer Growth Partners (CGP) and Deloitte indicate that consumers are concerned about higher costs from inflationary pressures, putting a great deal and the right price top on mind for many. More than half of retail executives, however, expect flat or lower promotional activity versus last year. That means consumers may notice that deals will be harder to find.
This standoff comes amid ongoing supply chain disruptions and fears from executives that orders will either be delayed or won’t arrive in time for holiday.
Apparel and accessories, however, appear set to be top categories in a bright spot for the industry.
Spotlight on Apparel
Retail research firm Customer Growth Partners (CGP) is expecting a 6.7 percent year-over-year increase in holiday sales to a record $813 billion during the November-December shopping season, but that rate of growth represents a slowdown from the 7.7 percent pace in 2020 over the same period. Moreover, while the 6.7 percent growth rate would normally be considered a robust pace, it is less than half the 14 percent year-over-year uptick for 2021 year-to-date through September.
“After stratospheric growth for almost a year, consumer spending is beginning to settle down to ‘near-normal’ rates,” Craig Johnson, CGP’s president, said. “However, the deceleration from the heady double-digit growth of 2021 year-to-date is due to raging energy price hikes, widespread inflation and the supply chain challenges—all mitigating but not fully offsetting otherwise healthy consumer fundamentals.”
In good news for the industry, Johnson’s research indicates that apparel and accessories sales will outpace other merchandise sectors for the first time this century, with 18 percent growth from 2020’s sluggish levels. Department stores also will see their best holiday growth rate in decades, up 13 percent year-over-year, but will still far lag their total sales from the 1990s, when the sector’s shrinkage accelerated. Sporting goods and toy and hobby stores are forecast to see sales rise 9 percent year-over-year. E-tailers can expect to see a sales uptick of 7.7 percent to $194 billion for holiday.
Earlier holiday forecasts from September projected a higher pace of growth for the season. Bain indicated a 7 percent uptick from last year and Mastercard forecasted a 7.4 percent gain. Also, global consulting firm AlixPartners expects holiday retail sales to grow between 10 and 13 percent.
But in the weeks since those projections were issued, there’s been a growing concern about supply chain challenges across all sectors, not just apparel and retail. Consumers are seeing higher prices at the grocery store, not to mention some visible shortages. And Costco Wholesale Corp. has put back in place purchase limits for certain items.
More importantly, consumers are growing cautious about the economy. The Conference Board on Sept. 28 said its Consumer Confidence Index fell for the third month in a row, standing now at 109.3, down from 115.2 in August and representing a seven-month low. Lynn Franco, senior director of economic indicators at The Conference Board, said the back-to-back declines indicate that consumers have become more cautious, and could possibly “curtail spending going forward.”
Although the retail recovery has been exceptional on a two-year basis—and the 2021 Holiday forecast represents a 15 percent uptick from 2019’s $707 billion—Johnson said the slower rate of growth shows the “sharp” impact from inflation and energy prices, “which are estimated to take some $46 billion out of discretionary spending for the holiday period, with gasoline alone expected to subsume some $35 billion.”
Moreover, the economic impact on holiday from supply challenges is expected to take another $10 billion away from holiday spending. Johnson expects some demand will get pulled forward into October, or get delayed into January.
“Labor shortages, supply chain bottlenecks, and consumer resistance to rising prices are also holiday headwinds,” Johnson said. “The greatest uncertainties may be a Covid rebound, along with spiking energy prices—each dime of increase at the pump takes $1.3 billion a month out of retail spending.”‘
Deloitte Weighs In
Separately, data from Deloitte’s 36th annual Holiday Retail Survey of 4,315 U.S. consumers from Sept. 7-14 indicates that the average spend will be $1,463 per household, up 5 percent from last year and with higher-income shoppers driving nearly all the gains. But that figure is still just below the $1,496 average planned spend in pre-pandemic 2019.
This year, three out of four consumers, or 75 percent, said they were concerned about stockouts, motivating many to begin their shopping earlier this year.
Seventy-seven percent of respondents said they will purchase apparel and accessories this holiday season, giving the category the highest share of wallet spend at 22 percent. That was followed by gift cards and other at 17 percent and electronics and accessories at 14 percent.
What was evident from the survey was that higher-income households plan to spend five times that of their lower-income counterpart, or an average expected spend of $2,624 per household versus $536 for lower-income groups. Another 11.5 percent said they don’t plan to spend at all this year, up from 4.9 percent in 2020. Two-thirds of the non-spender group are from lower-income households, versus 12 percent from their higher-income counterpart. Among those who plan to spend less this year, nearly half said it was due to higher food prices.
Spending on experiences is expected to rise 15 percent from a year ago, while spending on gifts is expected to rise 3 percent to $501 per household. The good news is that pandemic anxieties have decreased, with those nervous about shopping in a store falling to 40 percent from 51 percent a year ago. That is expected to give in-store shopping a bump up of 33 percent this year, up from a 28 percent gain in 2020, although still below the 36 percent level from 2019. One plus from this year’s survey—the average distance shoppers will travel to buy a gift is 11.5 miles, up nearly two miles from 2020, although 42 percent said they would prefer shopping at local retailers than at national retail chains.
Online-only retailers are expected to be the leaders by purchasing channel at 55 percent, with mass merchants close behind at 51 percent. Local merchants ranked third at 27 percent, followed by off-price stores and traditional department stores, each at 26 percent, to round out the top five.
Digital spend is expected to rise to $924 from $892 last year. And consumers seem to want to stick to certain conveniences, with 75 percent noting they will rely on standard delivery, 47 percent choosing same-day or next-day, 33 percent opting for BOPIS (buy online, pick up in stores) and 21 percent favoring curbside pickup.
“Retailers will see strong growth this holiday season, even as supply chain issues, inflation and highly bifurcated spending continue to impact our industry. Consumers have adapted to life during the pandemic and even though they are venturing out again, digital engagement shows no sign of slowing,” Rod Sides, Deloitte’s vice chairman and U.S. retail, wholesale and distribution leader, said. “Retailers who remain resilient by offering promotions early, appealing to in-store and online shoppers, and planning their inventories well in advance, are likely to experience not just a robust holiday season, but will be well positioned for continued sales into the new year.”
The Deloitte survey also polled 30 retail executives across all retail categories, with 90 percent of the companies having annual revenues of $1 billion or more. Retailers were confident that consumers will be spending this holiday season, with 73 percent expecting shoppers to spend more or significantly more this year. Reflecting that confidence, 33 percent of the retail executives polled said that their holiday order volumes grew by double digits year-over-year. They were also optimistic about online sales, with 40 percent expecting double-digit channel growth. Sixty-seven percent expect holiday shopping to start at least one to two weeks earlier this year.
But retail executives also are worried about the impact from the supply chain, with 43 percent stating they expect their ordered holiday inventory to be delayed and 64 percent noting concerns about receiving inventory in time for the holidays. That comes despite 43 percent of the retailers noting they placed their holiday orders earlier than in 2019.
As for inflationary pressures, 53 percent of retail executives expect product prices to rise this holiday season, while 57 percent expect flat or lower promotional activity year-over-year. In addition, 36 percent said they began holiday promotions early to woo early-bird shoppers, a plus for retailers as the Deloitte study found that consumers who start their shopping earlier are expected to spend 23 percent more than those who start on or after Thanksgiving.
Other Holiday Insights
In a survey by Coresight Research x January Digital on 2021 U.S. Holiday Insights, the study found that consumers will be using both online and in-store channels. Interestingly, the study found that consumers over the age of 60 will be driving the increase in e-commerce sales, from 52 percent to 59 percent year-over-year, while their counterparts between 30 and 44 will spend more in the stores.
“We are expecting strong growth, with shoppers using both online and in-store channels. While we are expecting outperformance in apparel, particularly occasion wear, as well as toys and beauty, retailers are not going to be handed success on a platter. They will need to take a granular look at the trends, generational differences and category spending plans, and execute their promotional strategies to that playbook, keeping a laser focus on inventory and shifting demand,” Deborah Weinswig, founder and CEO of Coresight, said.
While product pricing was a top consideration, easy, free product returns for online orders were important to nearly half of the respondents at 45 percent. And while discounts and promotions were important to some consumers, convenience and value in the last mile took priority over heavily discounted products. And for those considering purchases via social channels, 50 percent of respondents said they plan to use Facebook as their social shopping channel of choice.
The Adobe Digital Economy Index is forecasting a record $207 billion holiday season online in the U.S. and $910 billion globally. Adobe also expects $4.1 trillion to be spent globally online in all of 2021, a new milestone for e-commerce. Adobe Analytics data covers one trillion visits to U.S. retail sites, 100 million stock-keeping units and 18 product categories, with global views based on transactions in more than 100 countries across the Americas, Asia Pacific and Europe, Middle East and Africa.
With consumers shopping online throughout the year, Adobe’s study found that the major shopping days are losing prominence. Cyber Week from Thanksgiving through Cyber Monday is expected to drive $36 billion in online spending, or 17 percent of the entire holiday season. That growth is slowing, coming in at 5 percent year-over-year for the five-day period, which is less than the season overall at 10 percent year-over-year. Cyber Monday is expected to drive $11.3 billion in sales, up 4 percent year-over-year, but consumers will pay 9 percent more on average this year. Smaller discounts and inflation are causing the bump up in prices. Apparel will see discounts peaking at 15 percent versus 20 percent last year.
Curbside pickup is expected to grow this year, and consumers’ fear over shipping delays could drive usage up, with the option peaking in the days just before Christmas Eve. The Adobe data also found that consumers are embracing the Buy Now Pay Later (BNPL) options to free up cash during the holiday season. Twenty-five percent of respondents said they have used BNPL in the last 3 months.
It also found that out-of-stock messages rose 172 percent going into the holiday season, and Adobe expects that’s going to stay the same throughout the holiday period. Of the 18 categories the survey tracked, apparel has the highest out-of-stock levels currently, followed by sporting goods, baby products and electronics.
“We are entering a second holiday season where the pandemic will dictate the terms,” Patrick Brown, vice president of growth marketing and insights, Adobe, said. “Limited product availability, higher prices, and concerns about shipping delays will drive another surge toward e-commerce, as it provides more flexibility in how and when consumers choose to shop.”
And in a 2021 luxury retail report from DataWeave, “Luxury Apparel Retailers Back in Vogue,” the data firm found that luxury brands are regaining their pricing power. It cited Louis Vuitton as a brand that saw 92 percent of its accessories discounted on Farfetch.com in 2019 before the pandemic. During the pandemic last year, the discounting fell to 37 percent of the brand’s accessories, and by 2021, no accessories on Farfetch have been discounted.
While that data suggests that consumers are willing to pay full price—particularly millennials, who will account for 50 percent of luxury sales by 2025—retailers will still need to pay attention to shifts in demand, according to Krishnan Thyagarajan, DataWeave’s president.
“Traditional velocity in the market is changing and changing pretty fast. More products are coming in faster and new products are getting introduced. The trends are also changing fast. Retailers will want to succeed and that means they have to respond to these changes faster, too,” he said.
Thyagarajan added that if a retailer is running a promo, it should track it to see what the response is—either on their sales, on the price points, or how the competition is responding to those changes—and then go back to the market again with any adjustments. In short, he says a retailer’s “overall cadence has to increase” in connection to how it responds to market changes, not just for holiday but also in the future.