In 2020, it was pandemic closures and social distancing. Last year it was the supply chain. Now the problem is demand.
For retailers, this holiday season may be the biggest test yet.
Holidays are the most important time of the year for retail. November and December can account for up to a quarter of annual department and specialty store sales. Businesses order seasonal and holiday items months in advance to ensure sufficient inventory. The holiday season’s dominance has remained largely stable amid the turmoil of the pandemic. Through curbside pickup operations and a shift to more expensive flights during last season’s recession, retailers were profiting from people ready to spend money on all kinds of products.
Now, Americans are heading into a season that encourages them to splurge on holiday gifts, but the willingness to do so isn’t the same.
Vivek Pandya, lead analyst for Adobe Digital Insights, notes that rising prices for gas, food and commodities ignore the Federal Reserve’s efforts to curb inflation. I had to get through it,” he said.
While overall consumer demand for commodities and services remains strong and prices continue to rise at a faster pace than expected, nearly 60% of U.S. shoppers say that when making holiday shopping decisions, It states that finances are taken into consideration. Investigation According to Sensormatic Solutions released this month. This is up from 14% last year. One in five of his holiday shoppers will shop less this season due to changing economic conditions. Recent research It was discovered by marketing research firm NPD Group.
This holiday season, said Pandya, retailers “need to think a little bit more and pivot to win over consumers, rather than just thinking about profit margins on purchases.” “Right now, with demand weakening, we really need to work hard to reach out to consumers and get them to the ones most likely to spend.”
However, discounting hurts retailers’ profit margins, and the strategy has been used sparingly in recent years. Especially during last Holiday’s season, retailers posted larger margins thanks to a deadlock in the Supply-His chain. Inventories were low and shoppers were desperate to get their hands on the goods. Result: less discount.
“Across department stores and specialty apparel, much of it will be reversed, if not more,” said David Silverman, senior director at Fitch Ratings. “Consumers are losing their appetite and will need a call to action.”
It’s a very difficult time for companies that sell stuff. The Federal Reserve (Fed) has tried to counter record inflation this year by raising interest rates and restraining consumer spending. Retailers have a ton of products that shoppers no longer want. Consumer spending on durable goods has been declining over the past few months, according to the data From the St. Louis Fed. Many retailers recently revised their full-year financial outlook, halted hiring and closed stores.
Amazon will freeze corporate hiring in its retail operations for the rest of the year. Peloton will lay off about 12% of its workforce in its fourth layoff this year. FedEx is suspending hiring and closing stores as demand declines. Walmart plans to hire fewer seasonal workers this year. Gap is cutting 500 corporate positions.
Inflation FAQ
What is inflation? Inflation is the loss of purchasing power over time. So your dollar won’t go as well tomorrow as it did today. It is usually expressed as annual changes in the prices of commodities and services such as food, furniture, apparel, transportation and toys.
The disappointing holiday season has caused retailers to rethink their business strategies even more, which could lead to restructuring and layoffs in 2023.
Riza Amrani, founder of consulting firm Retail Strategy Group, said of the industry:
In-store foot traffic has yet to return to pre-pandemic levels. In September, he was down 8.8% in department stores and 8% in specialty apparel, according to his Placer.ai, which tracks foot traffic through mobile phone data. Compared to 2019, department store foot traffic decreased by 24% and specialty apparel by 14.5%.
We also expect weaker online sales growth in November and December compared to the last two holiday seasons. According to Adobe Analytics, online sales are expected to grow by just 2.5% this year to $209.7 billion. This is a far cry from 33% growth in 2020 and 8.6% growth last year.
The holiday season is always marked by price cut declarations and not-to-be-missed deals, but executives have said in earnings calls and interviews that they expect more discounts across the industry this year.
Levi Strauss Chief Financial Officer Hermit Singh said on this month’s earnings call, “We expect more promotions in the broader market through the end of the holiday season.
Understanding Inflation and How It Affects You
Ulta Beauty CEO Dave Kimbell said his company will drive customer loyalty programs and promotional events like Holiday Beauty Blitz, which include up to 50% off weekly sale prices on makeup and skincare. said.
“There are some competing influences this year,” Kimbell said in an interview. “We know consumers are more broadly adapting to economic changes and inflationary pressures.
Apparel-based retailers are experimenting with new ways to persuade consumers to spend, often making deals earlier than usual. Part of that is due to excess inventory that has plagued both management and investors. But shoppers also show that seeing deep discounts on the items they want is paramount when considering whether to buy.
Last week, Amazon held its second Prime Day. Target extended its price-match guarantee longer than usual when it rolled out an early holiday deal event this month. Walmart has given subscription program members the option to have their returns delivered to their doorstep, giving shoppers more time to return items.
Kohl’s created the “Bricktober” event. The event aims to double the amount of LEGO toys he sells, with discounts of up to 20% on select toy brands throughout the month. On October 6th, his chain of department stores also began selling different items each day. This will last until Christmas. Best Buy will launch its Black Friday deals on Monday.
Early holiday sales aren’t new, but retailers have different reasons for using them. In 2020, when social distancing was paramount, the October deal was billed as a way to prevent crazy dashes to stores on peak shopping days like Black Friday. As the reality of the impasse became more apparent, retailers urged the public to shop early to avoid the possibility of missing gifts under the Christmas tree.
According to Fitch Ratings’ Silverman, a deal earlier this year could help retailers get rid of some of their excess inventory and gain insight into what’s selling well during the season. Retailers are also aware that wallets can get tighter as the season progresses, so they want to speed up sales to shoppers.
There are signs that shoppers are taking advantage of offers and starting to buy gifts. According to Sensormatic Solutions, 42% of his consumers say the timing of promotions is impacting their holiday shopping schedules. The holiday season can also pose new challenges as it affects how retailers think about the coming year.
Amrani of the Retail Strategy Group said: “If they can’t hit that number, drastic measures will be needed.”