The 2019 holiday season was a solid if unspectacular success, with overall retail sales up 3.4% and online sales up 18.8%, according to data from Mastercard SpendingPulse. The results were slightly below the 3.8% to 4.2% total growth projected by the NRF, but the dip was not entirely unexpected due to geopolitical concerns that slightly restrained an otherwise strong economy.
"You could say it was pretty close or in line with expectations,” said Mike Sansone, Principal in the Consumer Practice of Kearney in an interview with Retail TouchPoints. “Maybe it was a little bit softer than a lot of firms might have hoped, but that was likely due to some of the uncertainty going into the tail end of the year with the impeachment and China trade war, which caused consumers to be a little bit more cautious about the early part of 2020.”
While current economic and political factors hung over the holiday season as a whole, several other challenges and trends provided retailers with valuable lessons that can be applied to 2020 and beyond:
- Poorly considered or ill-timed discounts can hurt: The traditional practice of escalating discounts as Christmas approaches didn’t map to the peaks and valleys of 2019 holiday traffic, leading to over-promotion and unnecessarily reduced margins;
- Resale becomes more mainstream: Shoppers are becoming more comfortable with the idea of purchasing quality used items for their friends; and
- Past data should be backed by current insights and agility: Retailers can learn a lot from looking at previous seasons, but they also need to be ready to jump on sudden trends using real-time information.
The shorter holiday calendar also may have had an impact on overall sales totals. Retailers launched promotions early to kickstart the season, but with limited success.
“The shorter season did have some clear impacts on the actual number of transactions, according to our data,” said Andy Mantis, Chief Business Officer at 1010data. “In the universe we cover, we saw an average drop in transactions of 7% when we looked at companies in comparison with the NRF’s Q4 retail calendar. However, this was somewhat offset by the average transaction size increasing by about 2.5%.”
The abbreviated season also affected where customers shopped. Retailers with more “elastic spend” — places where shoppers could make purchases for themselves in addition to gifts for others — generally weathered the shorter calendar better than “gift stores” like Build-a-Bear Workshop, according to Mantis. However, there was variation even within the elastic retailer category: J.Crew and H&M were able to accelerate recent sales improvements during the holiday season, but Abercrombie was roughly flat and American Eagle actually decelerated.
Promotions Need To Align With Customer Traffic, Not The Calendar
The days between Thanksgiving and the Tuesday after Cyber Monday, which SSA & Company dubbed “Turkey6,” were particularly strong this year. Shoppers viewed the period as a shopping holiday block, and the fact that some retailers remained closed on Thanksgiving Day itself helped build anticipation for the rest of the period, according to Matthew Katz, Managing Partner and Practice Lead in the Retail & Consumer Practice at SSA & Company.
However, traffic dropped off in the following weeks before picking up again in the final leadup to Christmas, according to Katz. This unexpected dip caused some retailers to launch promotions that ate away at profit margins without generating the traffic necessary to make up for the discounts.
“Historically, retailers have used the weeks of the Christmas shopping season as builds to the prior week — so promotions would go from 30% off to 40% to 50% to 60%,” said Katz. “That doesn’t work; you need to strike while the traffic is there. For many, online traffic was at its peak during Turkey6; for others, it was Thanksgiving and the weekend before Christmas. Retailers need to take advantage of those peak traffic times whenever they strike.”
The 2019 season also presented retailers with another quirk of the calendar: Christmas’ midweek date extended the season slightly by giving shoppers an excuse to keep making purchases through New Year’s Eve.
Taking advantage of periods like this requires brands to take a close look at relevant data and plan their promotions accordingly. Even deep discounts won’t help during low-traffic periods, unless they’re precisely targeted to get people in stores and/or on an e-Commerce site. During the busier times, smaller discounts will suffice without weighing down margins. Promotions also need to be delivered to the right audience at the right time to maximize their impact.
“The lesson here is that if you’re a retailer who is going to promote, store signage and accessibility to get [shoppers] into the store is critical,” said Katz. “Communicating great product and great price is key: if you’re running a secret promotion, all you’re doing is giving away margin to a limited customer base, because you won’t have the traffic. If you don’t generate traffic, then you have to make sure you draw them to you.”
Resale Comes Into Its Own As A Gifting Channel
Shoppers on the lookout for a good deal are starting to recognize that quality products don’t necessarily have to be brand new. Secondhand goods have become destigmatized enough that they’re becoming acceptable gifts — no surprise for a category that’s expected to hit $23 billion in annual sales by 2023.
“The off-price/value channel is a favorite of consumers,” said Marie Driscoll, Managing Director Luxury & Fashion at Coresight Research. “Shoppers love deals and feel smart when they get a sharp price and good quality. This impacts consignment and thrift stores. The stigma against shopping these venues has all but evaporated — this season we saw that thrifting isn’t just for self-gifting. Thrifts and consignment shops have become a source for gifts to give, too.”
Resale isn’t yet making a huge splash on overall holiday spending, but that could change in the coming years, according to A.T. Kearney’s Sansone.
“Rather than driving back and doing a drop off, I can just put [an item I no longer want] on a platform that I like to use and resell it for 80% of its value. That creates convenience and efficiency for the consumer, and that's the value proposition,” said Sansone. “’What I would expect retailers to see is a more efficient use of inventory, rather than going to a wholesaler channel or liquidation market, so they’re capturing more value out of the item. Those are potentially the types of things that business development functions within large retailers are looking at in terms of acquisitions.”
The resale segment will likely continue thriving in the wake of the holiday season as well: 63% of Americans say they "have too much stuff,” and 30% of Gen Z respondents plan to sell their unwanted gifts, according to a survey by Mercari. Older shoppers are less likely to turn to resale platforms (just 9% of Baby Boomers will resell unwanted gifts), but concerns regarding clutter are universal.
“In terms of purchase behavior, Gen Zers are markedly different from previous generations, in that they’re much more open to buying and selling used items. To many, sustainability is a key factor,” said Brad Williams, Head of Communications at Mercari. “In terms of domestic habits, generational differences are less noticeable. Most Americans say they have too much stuff, regardless of their age or gender.”
Agility Is Key As Retailers Look Toward Holiday 2020
Retailers are already starting to plan for the 2020 holiday season, and 2019 gave them plenty to consider. One area of interest was continued online growth: some categories are already well represented in this channel, but the fact that e-Commerce apparel sales saw strong growth means there is still plenty of opportunity for items that were previously linked with brick-and-mortar shopping.
"Consumers are feeling more comfortable with categories that traditionally didn't lend themselves to an online channel offer as much as other categories,” said Sansone. “We're seeing apparel with e-Commerce growth over the holiday around 17%, so consumers are becoming more comfortable with those types of categories. This is part of an ongoing shift in consumer behavior: people getting more comfortable with omnichannel options across categories, not just in areas like electronics.”
Retailers also will need to consider the nature of their promotions during the next holiday season. Discounts can eat away at the bottom line, so understanding the shopper base and looking for alternative ways to drive interest will be key in making the most of the year’s busiest month.
“Less is more: retailers need to create scarcity via drops and product exclusives,” said Driscoll. “Consumers want bragging rights. Limited-time collaborations attract new shoppers, are exclusive and create excitement. Bring back excitement to shopping and shopping centers, and consumers will come and spend.”
Finally, retailers need to be agile and ready to react to the shifting nature of trends and traffic. This means investing a healthy amount of capital into innovation, according to Sansone. It also means making the most of both historic and real-time data to keep on their toes and meet every challenge or opportunity head on.
“Looking in the rear-view mirror for context and history, 2020 may not be anything like 2019,” said SSA & Company’s Katz. “What will carry over is that you have to be digitally native and analytically savvy to understand what’s happening in the moment and be able to react to it in real time. Promotions changed dramatically and quickly, nimbleness and supply chain and how you ship was critical, and protecting yourself from fraud is paramount — as online increases, so does fraud. Retailers have to be increasingly aware of addresses they’re shipping to.”
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