Fall is the crystal ball season in the retail world. As the industry prepares for the holiday selling season, prognostications abound.
Consumers are surveyed, macroeconomic data is pored over, executives are grilled by analysts for any bit of the most current data from stores.
This state of things has only intensified in the pandemic era, where the world seems to change, starkly, on a monthly basis. The retail holiday season has gone through several convolutions over the course of the pandemic. COVID-19 has shaped the period in ways both expected and surprising, and in ways that have been different for each year.
With another unpredictable holiday season approaching — the third since the pandemic reached the U.S. — it’s worth looking backward as well as forward.
2019
Imagine, if you can, a world where the word “pandemic” was mostly used by historians and scientists. And also one where the average person, if you stopped them on the street, would tell you that they give little if any thought to the “supply chain” of the items they purchase.
It was a simpler time, but yet still familiar. The last holiday season of the pre-COVID era was marked by upticks in mobile and online shopping — which would accelerate wildly in the next year. Still, 84.2 million shoppers went to stores on Black Friday. Shopping crowds — as long as they weren’t trampling each other to get to discounted merchandise — were not in and of themselves a hazard.
For all the talk of a retail apocalypse in that era, the industry posted sales gains during the season (with e-commerce popping almost 19%). A lot of shopping happened on the traditional frenzied shopping days around Thanksgiving: Nearly 40% of the season’s sales came on Black Friday and Cyber Monday.
That made for a short season, with many holding off on purchases until late in the period, either seeking better deals or on the innocent assumption that they could still get what they wanted when they got around to it.
Foot traffic on Black Friday declined. Yet store pickup of online purchases was gaining steam. Both trends would dramatically accelerate in the year to come.
2020
By Black Friday 2020, the world had endured more than six months of a once-in-a-century pandemic that had already killed more than 200,000 people in the U.S.
Stores had endured several weeks of closures and revenue drop-offs in the spring, as the retail industry did its part to help the world “flatten the curve.” In reopening, they had a blueprint for operating in a pandemic: mask requirements, capacity limits, foot traffic restrictions, sanitation protocols and a host of other measures.
Yet consumers still had reason to be wary. Public health authorities had warned of a dark winter ahead, with more COVID-19 cases, illnesses and deaths to come.
Against that backdrop, few had the confidence to predict sales levels for the holiday season. On the one hand, many consumers had suffered physically or economically during the pandemic, or both. Much of the country held off on gatherings, holiday parties and travel during the season. On the other hand, people needed something to feel good about, and holidays were for many a welcome respite from the dark cloud of the pandemic.
Professional estimators hedged their bets. Deloitte unveiled a “K-shaped” estimate, with sales projections at the low end on one hand, or modest on the other, depending how different factors would unfold during the season.
Holiday shopping in 2020 was also shaped by timing. Retailers, trying to head off Black Friday crowds (and perhaps also trying to head off a massive e-commerce shipping crush in peak season) encouraged early shopping.
Amazon — which had postponed Prime Day because of the need to focus on household essentials in the early, panicky months of the pandemic — moved its member shopping holiday to October. As happened with Prime Day in normal times, other big players followed suit.
The early shopping led AlixPartners to declare the traditional holiday shopping period “meaningless” in 2020.
The holiday shopping creep earlier in fall may indeed be one of the lasting impacts of the pandemic on the season. “The length of the season — I think that will be sticky at least for a few more years,” Katie Thomas, who leads Kearney Consumer Institute, said in an interview. “We went from supply chain issues last year to this year and inflation, and trying to give people that longer window to shop.”
Interestingly, Thomas noted that in 2020 most shoppers who made purchases during the October sales blitz weren’t actually shopping for the holidays. “They simply weren’t ready,” Thomas said. “That’s what I think has changed on the consumer side. They’re a little bit more ready, a little bit more open.”
In other words, that first year of early holiday sales may not have had its intended effect, but it taught consumers to shop earlier in later years.
The traditional Black Friday shopping event, declining in importance for some time, collapsed in 2020. For one thing, Walmart and Target announced they would close on Thanksgiving Day, reversing the creep of shopping into the holiday. Black Friday itself saw foot traffic plummet, by more than 50% according to one estimate.
Spending declined on the whole over the Thanksgiving weekend. But digital sales rose by double digits, and curbside pickup increased by more than 50% year over year on Black Friday 2020.
While many retailers promoted curbside and BOPIS as a matter of safety amid the pandemic, Alexa Driansky, a director in AlixPartner’s retail practice, said in an interview that survey data showed these channels to be primarily a convenience play for consumers, one that has waned since 2020.
”Especially when consumers now can just have things shipped to them for free, they really like the convenience of that,” Driansky said. “There's really no reason for them to use curbside or BOPIS, unless they need to pick something up last minute.”
Widespread e-commerce shopping also may have encouraged consumers to shop early, as experts and media outlets, including this one, warned that gifts ordered too late in the season might not be shipped in time for the holidays.
And while digital and omnichannel growth has slowed or even reversed in some cases, far more customers have become accustomed to the convenience of online channels for shopping.
2021
In between the end of the 2020 holidays and the 2021 season, a lot happened. Most importantly, vaccines were released broadly to the American public, to all age groups down to children aged five. While vaccines didn’t stop COVID-19’s relentless spread, they had a significant impact on hospitalizations and deaths from the disease.
Vaccine access and pandemic management were uneven around the world. While U.S. consumers got their shots and went shopping, many countries that produce the goods they buy continued suffering deadly outbreaks and went through lockdowns.
China shut down major port and factory cities to control COVID-19. In Vietnam, the pandemic shut down or slowed factories in several areas. Bangladesh, India and several other major manufacturing areas suffered outbreaks as well.
All of this was on top of capacity constraints throughout the supply chain, a result of the economic standstill of early 2020. Thus, for 2021, supply chain bottlenecks, along with sharply rising demand, defined the year in retail.
Empty shelves, rather than social distancing, weighed on consumers’ minds. Walmart, Target and Amazon, among others, sought to reassure their customers that they would be fully stocked for the holidays.
“People were very aware of the supply chain issues,” Kearney’s Thomas said. “Seventy-four percent of consumers told us they’d be OK if the gift arrived after the holidays.”
For all the talk of a supply chain meltdown, the season brought strong sales, and hefty profits for many despite spiraling freight and supply chain costs, thanks to higher prices and fewer discounts in an inventory-constrained environment.
The highly publicized supply chain issues of the year may have helped solidify an earlier start to the holiday season, as well as consumers’ comfort with online shopping, as it allowed them to check in-stock levels online and avoid going to stores only to find an empty space on the shelf.
2022
At the beginning of this year, retailers may have dared to hope of a return to normalcy by the holidays as supply chain pressures eased.
But the year has been anything but normal. With Russia’s invasion of Ukraine, and the turmoil it caused in energy markets, inflation has squeezed consumers even harder. And consumers responded to high gas and food prices by playing defense in discretionary spending.
Where collective anxieties revolved around the pandemic in 2020 and supply chain failures in 2021, this year much of the focus is on price.
A KPMG survey of retail executives reinforces just how much has changed since last year. Last year, 80% of survey executives said they were either somewhat or very concerned about holiday inventory shortages in 2021, but this year only 11% say they expect significant shortages and a majority (59%) say they only expect minimal shortages, according to KPMG.
Consumers, meanwhile, are laser-focused on price. According to an AlixPartners survey, 39% of consumers plan to buy at least half of their holiday purchases on sale and 40% said they plan to buy more affordable brands.
“Consumers were fat with cash last year, they had pretty fat wallets thanks to government subsidies,” Driansky said. “The sentiment has shifted drastically this year, relative to the years prior … and that’s mostly driven because of economics. Inflation [is] impacting affordability, and consumers are very concerned about the current economy and where the economy will be a year from now. That was not the case at all in 2020 or 2021.”
Along with more price-sensitive consumers, retailers might still have inventory that they are trying to unload as the holidays pick up, which could make for a sale-filled season.
“There's a lot of excess inventory on the market, so we're going to see a lot of discounting and bargain shopping,” Bill Krogstad, a managing director in FTI Consulting’s retail and consumer products practice, said in an interview. “Also, with the inflationary pressures, we'll see customers looking for those deals for this season.”
Krogstad added that, along with seeking out discounts, consumers will likely pull back on big-ticket purchases during the holidays.
Retailers are also giving consumers the opportunity to shop early this year, as they have since the pandemic began. Target, Amazon and others are planning sales events in October that could kick off the season.
And now consumers may be better prepared to take advantage. “If they have the space, they're going to start looking for deals when we see these retailers launch sales in October,” Thomas said.
“In some ways the consumer is disadvantaged with this longer holiday season,” Thomas added. “It’s positioned as an advantage because in theory it’s longer, but you don’t really know when to pull the trigger.”
Along with growing accustomed to shopping earlier, consumers have become far more comfortable with digital shopping. According to AlixPartners, 40% of survey consumers plan to do the majority of their holiday shopping online, which is up 10 percentage points from its pre-pandemic survey in 2019.
What’s more, roughly three-fourths of consumers will research a product online before buying, according to Driansky, which means consumers are relying less on retail employees for information and recommendations.
“That is something that is here forever,” Driansky said.
