While 2017 was arguably a year of turmoil for retailers, the industry managed to end on a high note: $691.6 billion in holiday sales for November and December, a 5.5% increase over the same period in 2016, according to data from the National Retail Federation (NRF). The results exceeded the NRF forecast of a 3.6% to 4% increase, and marked the largest percentage jump since the 5.2% seen in 2010, when the country was coming out of the Great Recession of 2008-2009.
Another sign that things are looking up: growth was not limited to a few big retailers or specific verticals. “The holiday results were very strong, showing renewed confidence in the economy and some of the positive aspects of the tax cuts,” said Michael Brown, a partner in the retail practice of A.T. Kearney and author of an upcoming report on the future of retail real estate. “Additionally, the performance improvements seem to be across the board.”
Consumer spending patterns spell good news for retail and the economy as a whole. “Big-ticket drove growth,” said Deborah Weinswig, Managing Director, Fung Global Retail & Technology. “Reflecting strong consumer confidence and shoppers’ willingness to invest in their homes, big-ticket sectors such as home improvement, furniture, electronics and appliance stores led growth in the holiday season. Such bullish consumer behavior bodes well for retail growth in 2018.”
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Here are some additional key data points from holiday 2017:
• Retailers held discounts in check: Average discounts offered in Black Friday circulars were 44%, down from 45% in 2016;
• Online retailers cut marketing costs: e-Tailers cut marketing costs 22% but still managed to have a robust holiday season;
• Mobile continued its march: Mobile online holiday season revenue totaled $108.2 billion, a 14.7% growth rate over the previous year. During the five-day Thanksgiving weekend (encompassing Cyber Monday), 52% of shopper visits and 36% of revenue came from mobile devices; and
• The new year looks promising: Retail growth for the full year was 4% (excluding gasoline and auto sales) and could rise to 4.5% for 2018.
Some Good News (At Last) From Department Stores
Even the beleaguered department store sector generated a few winners this holiday season. “Kohl’s knocked it out of the part with a 6.9% comp store sales increase,” said Weinswig in an interview with Retail TouchPoints. “Is this a bounce back for department stores? Maybe. JCPenney also saw a strong holiday, though Macy’s comp was a slim 1.1% and Sears went south.”
Target also generated a healthy 3.4% same-store sales increase for November and December, according to Gordon Haskett Research Advisors.
Kohl’s physical footprint and a new partnership with Amazon are likely explanations for its strong season. “Kohl’s is mainly in off-mall locations, and open-air shopping centers have tended to prove more resilient than the kind of regional malls whose struggles make the headlines,” said Weinswig. “Kohl’s agreement to sell Amazon technology products and accept Amazon returns in its stores may have supported this growth too.”
Holiday Success Wasn’t ‘Juiced’ With Discounts
Beyond the solid top-line results, industry experts pointed to more tightly controlled marketing budgets, with less reliance on promotions and discounts than in recent years. “Retailers were smart about the amount of inventory they carried, so there was less discounting,” said Mihir Kittur, Chief Commercial Officer at Ugam. “That helped many retailers do well.”
According to MarketTrack, the average discount offered by brick-and-mortar retailers in Black Friday circulars was 44%, down from 45% in 2016. “Although discounting is generally prevalent and aggressive during the holiday season, we found that promotions were mostly in alignment with the same period last year, which we attribute to better inventory control and increased consumer spending,” said Weinswig.
Online Marketing Costs Dropped 22%
Digital retailers in particular found ways to boost sales without breaking their marketing budgets. “Retailers learned some tough lessons from the margin drain in 2016 to plan smarter and more efficiently in 2017,” said Sarah Engel, CMO of DynamicAction. “In 2017, retailers favored focusing on the customers’ expected promotions, but pulled back on marketing spending. Promotions were up slightly, at a 1% increase for the year versus 2016, but marketing costs were down an average of 22% for the year versus 2016.”
This data comes from the DynamicAction Retail Index: 2018 Year-in-Review & 2018 Outlook, an analysis of more than $7 billion in online transactions globally. The Index analyzes consumer transactions in the general merchandise, home goods and apparel categories, and does not include grocery or Amazon transactions.
Despite tightening the marketing purse strings, digital retail — particularly mobile — continued its growth trajectory in 2017. Mobile online holiday season revenue totaled $108.2 billion, a 14.7% growth rate over the previous year, according to Adobe Digital Insights. Additional key findings included:
• The 14.7% growth rate was slightly above the 14.4% rate seen during holiday 2016;
• Revenue from mobile (smartphones and tablets) was $35.9 billion, accounting for 33.1% of online holiday revenue and reflecting a 28% growth rate in year-over-year revenue;
• During the five-day Thanksgiving weekend, mobile devices accounted for $7 billion in retail sales, up 18% over the previous year; and
• 52% of visits and 36% of revenue came from mobile devices.
Retailers are improving their conversion capabilities on mobile (or perhaps consumers are getting more accustomed to shopping on these devices). During the Thanksgiving weekend, there was a 14.2% improvement in converting smartphone traffic, and a 1.9% improvement in smartphone average order value, according to Adobe.
Over the Thanksgiving weekend, smaller retailers (those with less than $10 million in sales) had stronger digital conversion rates across desktops, tablets and smartphones than their larger counterparts (those with $100 million or more in revenues). Large retailers’ tablet conversion rate was 4.6%, compared to 8.1% for small retailers. On smartphones, small retailers outperformed large retailers 4.4% to 2.6%.
Rosy Prospects For 2018
So, is it time to start singing “Happy Days Are Here Again”? Possibly it is — with a few cautious caveats related to returns, free shipping, mobile commerce, and tax code changes.
“We’ll have to look at the impact of returns on January sales,” noted A.T. Kearney’s Brown in an interview with Retail TouchPoints. “In an environment with increased online shopping, we’re seeing return rates go up as well, for example as people exchange items for the correct sizes.
“We also need to look very closely at the impact of free shipping on margin rates,” Brown added. “As retailers are forced to ship from multiple locations, including stores and distribution centers, it’s the equivalent of a $3 to $7 tariff being placed on almost every item that has to be put in a box for a customer.”
With mobile commerce, retailers can’t simply count on a rising tide lifting their boat. “Retailers who don’t provide the same quality of experience via mobile as they do other channels will lose out,” warned Carol Wolicki, VP of Corporate Marketing for RedPoint Global. “Consistency of engagement across the channel is key. Retailers need to understand customer identity, intent and behavior across all channels in order to achieve that.”
The recent changes to the tax code are projected to boost retailers’ bottom lines as well as put more cash in consumers’ wallet. Still, those sectors that faced headwinds in 2017 will still be fighting them during the coming year.
“A number of apparel specialty retailers are likely to continue to struggle,” said Weinswig. “The sector was among the lower-growth sectors over the holiday period; companies such as Ascena and Steve Madden reported further comp declines; and Express and Francesca lowered guidance after the holiday period.”
Additionally, the store closures that triggered all those “retail apocalypse” scare headlines are likely to continue. “We’re seeing the shift in delivery channels from physical to digital, based on consumer shopping behavior, continuing over the next five years,” said Brown. “In 2018 and forward, look for continued right-sizing or strategic scaling for retailers’ businesses. Brick-and-mortar retailers will continue to scale down, although evolving retailers and online startups will continue to open new stores to build up their physical presence.”
Physical retail is still strong, although it’s obviously in the midst of significant change. “The narratives that claim brick-and-mortar retail is dead or that there is a retail apocalypse are false,” said Brian Field, Senior Director of the Retail Consulting Practice for ShopperTrak. “The weekend before Thanksgiving Day through New Year’s Eve reversed traffic trends both from the preceding months as well as the 2016 season, underscoring that physical stores are healthy. Also, sales per shopper increased 3% year-over-year, proving that shoppers are going into stores and making purchases.”
Retail growth for the full year of 2017 was 4% (excluding automobile and gasoline sales), according to Weinswig, and “we expect it to strengthen to somewhere around 4.5% for 2018,” she said. However, providing further proof that there’s no such thing as totally good news, the strong season just past will set a high bar for holiday 2018: “The sector will be lapping the very demanding comparatives from the holiday season that has just gone,” she noted.
Matching a robust previous holiday season comes under the heading of a nice problem to have. Judging by the strong crowds and an overall buoyant mood at the 2018 NRF Big Show January 14-16, retailers are facing 2018 with high confidence levels — and the data indicates that that confidence is not misplaced.
For complete coverage of the holiday season, visit the Retail TouchPoints 2017 Holiday hub and the NRF 2018 hub.
