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Retail Industry Has High Expectations for Black Friday, Holiday Sales Season

Holiday sales numbers are expected to go up, but analysts note that the real measure of success will be impact on margins.

With Black Friday and the holiday shopping season just around the corner, it’s crunch time for many retailers and mall operators.

The season is critical for retailers because it can account for as much as 30 percent of annual sales.

And shoppers come out in mass. The National Retail Federation estimated that 174 million people shopped in stores and online during last year's five-day Thanksgiving weekend, which ends with Cyber Monday.

If this year’s forecasts are accurate, it could turn out to be a very joyous holiday season for many retailers and mall owners.

“I think it’s going to be a robust holiday and it will be more broad than past holidays,” says retail consultant Liz Dunn, founder and CEO of New York City-based Pro4ma Inc., a business analytics platform for retailers. “It’s not going to just be a tale of Amazon domination, but I think many of the sort of incumbent retailers are well-positioned for a strong holiday—and across categories. Electronics, apparel, toys, all seem to be shaping up to be quite strong.”

A healthy economy is driving the projected higher sales. Dunn says consumer sentiment is high. Unemployment is at record lows, and the wage gains are increasing. “The consumer has a job. They’re being paid more than last year, and they’re feeling okay about prospects for the economy,” she says.

The NRF expects 2018 holiday sales in November and December to climb between 4.3 and 4.8 percent over 2017 to between $717.45 billion and $720.89 billion. That excludes sales at restaurants and gasoline and automobile sales.

Similarly, CBRE forecasts retail sales gains of up to 4.8 percent for the holiday season.

As for consumer spending, the NRF found that consumers plan to spend an average of $1,007 this holiday season, up 4.1 percent over 2017.

“It’s the first time it has gone over $1,000,” says Katherine Cullen, director of industry and consumer insights at the NRF. “Consumers are feeling confident. Unemployment is at historical lows. Wages are creeping up, and people are willing to spend a little more.”

While it’s an important season for all retailers, the NRF looks at holiday gifts, which typically include electronics, food, beauty/personal care, jewelry and toys. (The organization also looks at spending on holiday apparel and decorations).

With the demise of Toys ‘R’ Us, retailers are ensuring that toys are available at every turn, CBRE reports. Target and Walmart are expanding their toy departments, and Amazon is mailing out its first-ever toy catalog to millions of consumers. But retailers including Michaels, Party City and Ace Hardware are also jumping in with limited toy offerings. At stake, CBRE reports, are $1.3 billion in sales in the toy category.

Grocer Kroger also wants to attract former Toys ‘R’ Us shoppers and announced a partnership to bring Geoffrey's Toy Box exclusive brands to nearly 600 Kroger stores for the holiday season. The pop-up shops will open in Krogers across 30 states.

More good news for retailers

Consulting firm Deloitte projects that U.S. holiday sales between November and January will increase between 5.0 and 5.6 percent over last year and could exceed $1.1 trillion. That excludes motor vehicles and gasoline sales.

E-commerce sales specifically are expected to increase 17 to 22 percent this holiday season and could reach $134 billion.

However, retailers succeeding in today’s environment are those so proficient at selling across multiple channels that few of their transactions are strictly in-store or online anymore, CBRE researchers note.

“It’s no longer about online vs. in-store,” NRF’s Cullen says. “People are shopping both places the whole weekend long.”

Retailers continue to advance their approaches to shipping, delivery, in-store experiences and tech-enabled commerce. Target, for example, announced new mobile checkout technology where shoppers can check out with a Target employee anywhere in the store and skip the lines.

“The consumer has gotten to the point where they’re going for convenience vs. price,” says Rod Sides, vice chairman of Deloitte's U.S. retail and distribution practice. “Mainline brick-and-mortar retailers have figured that out. All the big players have adapted their game to really be much more nimble and be able to play online, as well as in-store and meet customer demand exactly where they are.”

In the early days of omnichannel, companies were thinking about their business in silos, Dunn explains.

“They were thinking about the web and stores separately, and increasingly, the companies that are winning are just thinking, ‘We’re going to meet the customer wherever she is.’ That might be in a physical store, on a desktop computer or on a mobile devise. And she’s not necessarily thinking of a channel.”

What sectors will benefit?

“We think that the rise in tide will lift really all boats. All sectors will do pretty well,” Sides says.

But flourishing off-price retailers—like Ross and TJX Cos. stores—have seen “phenomenal growth,” he notes, and will continue to perform well during the holidays because people enjoy the “treasure-hunt” experience. Luxury chains are also expected to do well.

“It’s the companies in the middle that maybe have become a little more commoditized,”
Sides says. “They really don’t have unique products. Those are the ones that are struggling. That’s where we saw the store closures.”

It could be a make-it-or-break-it holiday shopping season for some retailers. Department store operators Sears, J.C. Penney  and Neiman Marcus are struggling. Payless ShoeSource, Claire’s and Nine West are also hurting. So far this year, nearly a dozen retailers filed for bankruptcy protection.

However, the retail industry overall is doing well. Moody’s Investor Service grabbed headlines in October when it revised its outlook for the retail sector from "stable" to "positive" for the first time since mid-2015. A strong economy, investment in e-commerce and greater efficiencies are driving a better earnings outlook for retail companies.

Moody's also forecasts holiday sales growth of 5 to 6 percent this year. The ratings agency expects that discounters and warehouse clubs, dollar stores, auto parts retailers, online and off-price stores will perform well during the holidays.

Competition heats up

Meanwhile, dominant players like Target, Walmart and Amazon have already set the stage for the season with lots of deals. How low will retailers go on prices to undercut the competition?

“We pay an awful lot of attention to promotions, and that’s usually where the rubber meets the road during the holidays,” says Charlie O'Shea, lead retail analyst at Moody's. “We’re not driven by revenue; we’re driven by operating income. Anybody can sell. The question is can you make money doing it? Every year there’s a story about XYZ retailer is struggling, and we’re in the same position this year. You’ve got Sears that will likely be incredibly promotional during the holidays. Last year we had Toys ‘R’ Us. And the question for competitors becomes: how bad do you want that sale? Are you willing to sell a dollar for 99 cents?”

That’s not a recipe for success, O’Shea says. Unfortunately, he notes that a lot of retailers get caught up in that promotional merry-go-round and the top line number looks great.

“A lot of folks will get all caught up in ‘sales are up, sales are up, sales are up,’” O’Shea says. “You will never hear anyone on our team at Moody’s crowing about sales until we hear about margins.”

He adds that retailers that can’t give up margins to compete with the big players should stay loyal to their branding and offer fitting experiences. For example, REI is closed on Thanksgiving and Black Friday to inspire people to “#OptOutside.”

O’Shea adds that Black Friday isn’t what it was 15 years ago.

 “Black Friday specials are already out,” he says. “It’s a long season. It gets longer every year.”

Who’s open, closed on Turkey Day?

BestBlackFriday.com reports that nearly 100 national and regional brick-and-mortar stores will be closed on Thanksgiving. They include Nordstrom, Costco, Ikea, Sam’s Club, Home Depot, Burlington and T.J. Maxx.

The giant Mall of America in Bloomington, Minn. announced it will once again be closed on Thanksgiving and open at 5 a.m. on Black Friday. Chattanooga, Tenn.-based CBL Properties announced for the third consecutive year that its retail properties will be closed on Thanksgiving Day and open at 6 a.m. on Black Friday. CBL’s portfolio includes 114 properties.

Meanwhile, more than 50 national retailers will open on Thanksgiving, including Target, Macy’s, Kohl’s, and J.C. Penney.

How much of an impact on sales is it for retailers closed on Thanksgiving?

“It’s a little bit of a game of chicken,” Dunn says. “Those that open on Thanksgiving will get some extra dollars for sure. It has become a thing. What we’ve seen overall though is it doesn’t increase the total spend over the weekend. It just kind of shifts the dollars from Black Friday to Thursday.”

There’s some business to be had, but overall, it seems for most retailers, it’s a little bit of a losing profit equation, she says. “Because unless you’re driving those big door-busters deals, then you’re having to staff the store, and ultimately, it’s spreading out the dollars over one more day with the additional labor costs and not really additional sales.”

However, Dunn adds it might be different for retailers in highly competitive categories, like electronics.

“Somebody’s going to buy one TV this season; you might want to consider being open,” she says.

 

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