The holiday retail season fell short of expectations as sales growth slowed noticeably from 2018, prompting questions over the health of the consumer and continued fears of a 2020 recession.
Mastercard SpendingPulse shows total sales rose 3.4 percent, far short of the robust shopping season from the past two years when total sales in 2018 climbed 5.1 percent on top of 2017’s 4.9 percent holiday gain. Based on the growing sales trends over the past two years, many were predicting stronger holiday sales numbers. In its annual surveys, the credit company uses payment data to track spending excluding automobiles from Nov. 1 through Dec. 24.
Buoyed by a 17 percent jump in online sales versus a year ago, apparel gained 1 percent overall this holiday, a lone bright spot in Mastercard’s results. Sales in the department store sector dipped 1.8 percent, although its online sales expanded by 6.9 percent.
“E-commerce sales hit a record high this year with more people doing their shopping online,” Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks Inc., said. “Due to a later than usual Thanksgiving holiday, we saw retailers offering omnichannel sales earlier in the season, meeting consumers’ demand for the best deals across all channels and devices.”
In other retail categories, jewelry was up 1 percent in total retail sales, with online sales rising 8.8 percent. The category’s up trend started before the holiday season, which “helped the sector power through to its finish,” Mastercard said. Electronics and appliances saw sales rise 4.6 percent, while home furniture and furnishings grew 1.3 percent.
By channel, holiday e-commerce sales rose 18.8 percent this year, up from the 18.4 percent growth rate in 2018, and represented 14.6 percent of the total retail holiday pie.
Analysts, retail consultants and economists were expecting a decent holiday for retailers in 2019, largely due to strength in the labor markets and perceived wage gains for a large swathe of consumers. U.S. monthly retail sales data has shown consistent gains in the digital retail channel, with the department store sector continuing to show sales pressures.
With U.S. holiday retail sales growth up just 3.4 percent, merchants could be facing a barrage of questions about their margins when fourth-quarter earnings reports trickle out.
If retailers garnered sales through deep discounts, their margins all but certainly suffered. But the question of how much won’t be known until retailers reveal their Q4 results.
Dec. 26, the first Thursday following Christmas this year, kicks off the start of returns season. Merchandise returned to the merchant is most often exchanged for something else, particularly in apparel if the size needed isn’t longer in stock. However, the day after Christmas also ushers in post-holiday sales when retailers clear out inventory to bring in new merchandise for the season ahead.
Exchanges on Thursday and thereafter will be for goods at a lower selling price than the cost of the returned item. While retailers can hope that shoppers pick up additional items prior to checking out, all those goods sold at lower prices will weigh down margins.
And if returns flow in after the deep discounting begins on Thursday, those sales prices eventually will go even lower as the discounting turns into clearance events, further eating away at margins. UPS expects to process a record 1.9 million returns on Jan. 2, dubbed National Returns Day, up from 26 percent a year ago.
Retailers began the discounting on Christmas Day. Apparel brand Pendleton Woolen Mills blasted emails offering up to 60 percent off and touting the “biggest markdowns of the year” had started with its Winter Sale. Talbots’ semi-annual “red hanger sale” includes an extra 40 percent off merchandise already marked down.
By the wee hours of Thursday morning, Nordstrom opened the doors, digital and otherwise, on its half-yearly sale, and soon other retailers and brands trumpeted their post-holiday promotions. Anthropologie was offering “40 percent off 1000s of new sale styles,” as off-pricer Marshalls noted that its “clearance [sale] is on!”
White House Black Market, a part of Chico’s FAS, began its semi-annual sale, while footwear firm Clarks was telling customers “Our Sale Just Got Better,” giving shoppers an additional 30 percent off sale styles if they use the code Take30 on online purchases. Lands’ End was sending out catalogs showing sale merchandise promoted at up to 60 percent off for its “Great Winter Savings,” but also offered markdowns of 40 percent on full-price styles for both online and in its stores.
And Michael Kors was holding its semi-annual sales with prices discounted by up to 70 percent. But the affordable luxury brand also offered VIP loyalty members an additional 10 percent discount for two days only when they sign into their online account and use the code Plus10.
Others touting sales include Coach, with 50 percent off all sale styles; Kohl’s Department Stores with up to 70 percent off clearance items; Tumi, offering 40 percent off its bestsellers for a limited time, and Macy’s, offering total savings of 40 percent to 60 percent in discounts, using the special code Joy online. Customers shopping from Dec. 25 through Jan. 1 can receive $10 in “Star” money for every $100 spent, but only if they sign up for Bronze membership in the retailer’s loyalty program.