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Holiday Hurdles: What Retailers Are Up Against

·7 min read

Potential stockouts. Diminished in-store traffic. Fading customer loyalty. Inflated advertising and fulfillment costs.

There’s plenty for retailers to worry about as they start the push to sell holiday 2020 gifts, weeks ahead of past years when the kickoff was right after Halloween.

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They’re increasingly anxious as they watch rising numbers of COVID-19 cases, which could lead to another round of temporary store closes; continuing layoffs in the public and private sectors, and political and social unrest boiling over. Planning holiday inventories has been more challenging than ever this year, involving enormous guesswork and efforts to speed the supply chain.

“Our country is split pretty close to 50-50. Half of the U.S. thinks the country is burning down. The other half thinks the country is on the right path. That just builds in more uncertainty,” said Vic Drabicky, founder and chief executive officer of January Digital, a consultancy working with David’s Bridal, Tumi, Rebecca Taylor, Maje and Fenty Beauty, among other clients.

“No one can think long-term because no one knows what’s going on. The uncertainty of the future, and how it will be impacted by the pandemic, politics and the economy, makes retailers think much shorter-term — what they can do today, to protect themselves,” he added.

That largely involves buying closer to need, and curtailing the buy.

“When demand is present and inventory is in question, brand loyalty goes out the window,” observed Jake Cohen, head of product marketing for Klaviyo, a platform for helping businesses to sell online, with clients that include Lids, Unilever, Steve Madden, Kylie Cosmetics and ColourPop Cosmetics.

“This year there is a high potential brands will run out of inventory early. The demand will still be there, but consumers won’t know where to get what they want. So they are going to go online and discover brands, and for those d-to-c [direct-to-consumer] brands online that communicate well, you will see a humongous increase in revenue.”

According to an August survey of 2,360 individuals conducted by RetailMeNot with SurveyMonkey, 35 percent reported a willingness to try new brands this season — an inevitable outcome from being disappointed by stockouts and bad service in past seasons. RetailMeNot is a web site for mobile coupons and codes, cash-back offers and browser extensions, and SurveyMonkey is an online survey development company.

After an atrocious second quarter, retailers must make up sales in the fourth quarter, which requires increased advertising and promotions. A big chunk of the increased spend will revolve around telling consumers that stores are safe from COVID-19 and are constantly being cleaned.

But all the advertising on television, social media and in newspapers related to the presidential election make it more difficult and expensive for brands and retailers to get the media time and space they want.

“TV [advertising] prices have been going up sharply, especially in the last month,” added Drabicky. “For brands to ramp up spending [on advertising], it’s a real challenge.”

“The election will dominate the airwaves through October into November. That means advertising costs go up, and the return on average spending goes down,” said Cohen.

Retailers and brands will also be challenged to meet promised delivery dates and rising shipping and fulfillment costs. “There’s a much higher volume in the mail due to the increase in e-commerce spending and mail-in ballots,” said Cohen. This year, from an average day in January and February, to an average day in April and May, there was an 88 percent increase in online revenues, he added.

FedEx and UPS both increased shipping rates by around 5 percent in 2020, and will be increasing rates next year. Mail has been further delayed by the U.S. Postal Service’s financial troubles and cutbacks, which has resulted in a political firestorm.

Meanwhile, consumer surveys on holiday attitudes and spending are proliferating, as they do each year, and there’s little consistency in the findings. They indicate that anywhere from 10 to 30 percent of the population has begun shopping for gifts. In a poll by Klaviyo, 75 percent of those polled claimed they would start their gift shopping before Black Friday; 30 percent have already.

In any case, it’s apparent people want to avoid store crowds that are likely to get bigger as the season progresses. They also want to make sure they get the gifts they want, and when they want them, knowing that retailers conservatively ordered for holiday.

Yet in a season of unprecedented uncertainty, there are some upsides.

First, many retailers have cleaner inventories after aggressive clearances in the first half of this year.

Secondly, by starting holiday earlier this year, they could move inventory sooner, accumulate selling data sooner, and get some reordering in for bestsellers. That would take some stress out of the final weeks and days before Christmas and reduce that “last-minute rush” for gifts this year.

“On Black Friday and Cyber Monday, we will still see pops in business. But I don’t see them having the same significance they had historically,” said Drabicky. Still, Black Friday should get a lift from stores deciding to stay closed on Thanksgiving Day, among them Target, Walmart and Best Buy.

Third, conversion rates in the stores will be higher because people intend to make fewer shopping trips due to the pandemic. They’ll research products online before visiting stores to limit the need for browsing and reduce time spent on the selling floors.

Fourth, if there is real hope of a vaccine for COVID-19 beginning to get distributed before Christmas, it will materially change how people spend.

And fifth, retailers believe there is some pent-up demand and extra discretionary dollars due to people sheltering in and foregoing traveling and spending on other experiences, such as dining out.

Cohen said consumer spending is only down 3 percent — not dramatically off levels before April. That month spending plummeted 33 percent.

“It has recovered. I believe there is pent-up demand that people will exercise in Q4, to feel good about themselves,” said Cohen of consumer spending..

But uncertainty is widespread. Deloitte, for example, in its annual holiday retail forecast, said 2020 could be a “tale of two holiday seasons.” The Deloitte retail and distribution team predicted that holiday sales could be flat to 1 percent up, or 2.5 to 3.5 percent up. Which will it be?

“Regardless of the scenario, however, the consumer’s focus on health, financial concerns and safety will result in a shift in the way they spend their holiday budget,” said Rod Sides, vice chairman, Deloitte LLP and U.S. retail and distribution sector leader. “For retailers, this holiday season will continue to push the boundaries on the importance of online, convenience, the role of the store, and the criticalness of safe and speedy fulfillment.”

“Consumers have never been more cautious when it comes to spending their hard-earned money — a hard truth that we will continue to see materialize in the second half of 2020,” said Sanjeev Sularia, cofounder and chief executive officer at Intelligence Node.

Saks Fifth Avenue’s ceo Marc Metrick said he’s “cautiously optimistic” about holiday, but isn’t about to publicly project fourth-quarter sales.

While some sectors of retailing are suffering, others are booming. Amazon Inc., Target Corp., Walmart Inc., Lowe’s Inc., Home Depot Inc. and Best Buy Inc. are doing well and ramping up hiring, while Macy’s Inc., Nordstrom Inc., Kohl’s Corp. and Neiman Marcus Group are among those making job cuts.

Amazon’s Prime Day has been rescheduled to Oct. 13 and 14. The company was forced to postpone the event in July due to pandemic-related product availability and demands on labor and warehouses as consumers stepped up their purchasing of essentials.

According to RetailMeNot, Amazon Prime Day is expected to be the biggest shopping day in the fourth quarter, with 67 percent of Americans planning to make a purchase during the promotional event. The next most-shopped days this holiday will be Cyber Monday, when 65 percent of the population is expected to shop, and Black Friday, when 59 percent of the population will shop.

According to RetailMeNot, electronics will be the most popular, with 61 percent of the population planning to spend on the category, followed by clothing and accessories, 52 percent; shoes, 33 percent; jewelry, 23 percent, and kitchen appliances, 18 percent.