The six-days-shorter holiday shopping season isn’t the sole reason why some retailers, Walmart among them, started rolling out deals even before Halloween. Tariffs are to blame, too.
Walter Loeb, a former retail analyst and now retail consultant, backs this up bluntly. “Retailers ordered ahead and shipped in advance in anticipation of the implementation of tariffs,” he said.
Inventory risk
There’s some truth to the general belief that consumers don’t want to pay higher prices, but starting promotions so early–about a month ahead of the typical holiday promotional cadence–suggests that many retailers now could be saddled with too much inventory, and some might be out discovering that they have the wrong products in stock.
Loeb expects holiday retail sales to climb 4.25 percent increase versus last year, with e-commerce promotions offering a key assist. What’s forecast to be a frigid winter will buoy sales of cold-weather apparel and accessories such as outerwear, boots and gloves, he added.
But Loeb cautioned as early as late August–just before the Sept. 1 tariffs went into effect for about $110 billion of Chinese imports that include apparel–that while retailers will likely achieve their retail sales targets, it could come at a cost to margins if they have to heavily promote in order to reach their sales goals.
“The holiday season now starts with Prime Day for the most of conscientious shoppers, but for the majority, attention typically turns to holiday shopping after Halloween,” Natalie Kotlyar, leader of BDO’s national retail and consumer products practice, said. “The shortened season is only one challenge facing retailers this year. They are also tasked with shedding excessive inventory since many stockpiled before tariffs set in. The combination of these obstacles has prompted heavier and earlier promotional efforts to meet numbers and preserve margins.”
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Early promotions so far
Aside from Walmart‘s decision to start early holiday promotions last Friday, over the past two weeks, retailers began sending out promotions to customers via e-mail, some with a special 30 percent off promotion, and others enticing consumers with specific flash-sale events.
Not all were labeled the ubiquitous “Friends and Family” event, and a few were quick to highlight free shipping before stating the percent off for the sale. Lands’ End, for example, offered “FREE 2-day shipping + 40% Off Full-Price Styles.”
Others touted discounts off already marked-down merchandise. A Neiman Marcus e-mail alert bore the subject line “40% off new markdowns + 30% off regular prices,” and inside promoted the “First Call Fall Sale,” which offers up to 40 percent off, and then a separate “Limited Time Shopping Spree,” which offered 25 percent to 30 percent off regularly priced merchandise.
And to create a sense of urgency, underneath a rotating gallery of apparel apparel items is the line “Save Before Prices Go Back UP!”
Talbots’ “Friends and Family Homecoming” sale offered 30 percent off all merchandise, including markdowns. A follow-up e-mail on Monday alerted consumers that the sale was extended but now with 40 percent off one item at regular price.
Gabriella Santaniello, retail consultant and founder of research firm A Line Partners, said she started seeing some flash sale events as early as the third week in September. The shorter selling season between Thanksgiving and Christmas is “putting pressure on retailers to ramp up promotional activity” as retailers start pulling forward promotions to get the sales, she said, noting that products like handbags and furniture that were tariffed over the summer could see margins degrade depending on how deeply retailers end up discounting the goods to clear out inventory.
A different discounting cycle may help this year. “I’m also seeing a shortening of the markdown cycle to keep inventory clean instead of waiting for the typical cadence so retailers know what’s coming in, receipt-wise,” Santaniello said, citing a teen retailer strategy promoting buy one denim item at 50 percent, get the second one free. The goal is to attract shoppers to the store with the offer, with the hope that they buy other items and increase their basket size.
Santaniello is expecting that newer fashion trends, such as wider-leg bottoms, will help drive apparel sales for holiday, and the new silhouette should also drive footwear sales as it requires a different shoe, she said.
In men’s, athleisure and multi-functional workwear will buttress sales. Handbags will likely be the loser, largely because the shapes and styles consumers already own can still work with new fashion trends, she said.
Holiday projections
On Monday, retail research firm Customer Growth Partners said it is forecasting holiday retail sales growth of 5.2 percent, which would represent a record $715 billion, up from 2018’s record of $679 billion.
“After a slow first half of the year, retail has inflected upwards since July, and has hardly looked back,” CGP president Craig Johnson said. “After a back-to-school season with 5 percent growth, this is the best momentum we’ve seen since 2014, when retail posted a robust 5.5 percent holiday jump.”
While apparel, consumer electronics and the department store sector will see softer sales, online shopping should see growth, as well as at big box discounters–Costco, Target and Walmart–as they all step up their pace, both online and off, Johnson said.
Apparel is forecast at up 1.3 percent, down from plus 4.1 percent in 2018, and department stores are expected to be down 6.4 percent.
An increase in disposable personal income from job and wage gains is powering the projected holiday growth. Many households have steady cash flow following an increase of over 2.34 million full-time jobs over the past year, plus wage gains of 3.4 percent year-over-year, according to CGP, citing data from both the Bureau of Labor Statistics and the U.S. Bureau of Economic Analysis.
“Consumers with only a part-time job or no job spend just on needs, while people with full-time jobs spend on both needs and wants. This is the first time in over a decade that more than half, 51 percent of working adults had a full-time job, up from 48 percent as recently as 2013,” Johnson said.
Any tariff-based increases in retail prices for apparel and footwear could yield lower unit volume, but higher dollar sales, he pointed out.
Sales up, but what about margins?
Dave Cesaro, executive director of retail at data marketing firm Valassis, also expects a bright holiday season for a lot of retailers, particularly based on the momentum from back-to-school sales. What will be interesting, he added, is how retailers will use promotions to grab market share.
“We’ll see how that plays out,” he said, explaining that promotions will drive sales but that profits could be hurt.
“Our research at the end of 2018 proved that people are conditioned to buy on deals, and discounts and promotions are the biggest driver in making a purchasing decision,” Cesaro said. “Retailers can’t get away from that…. The problem is on the back end, and which retailers can make the adjustments that are necessary so that the increase in sales doesn’t affect margins so badly.”