In an effort to beat the crowds before risking sterile shelves later in the season, holiday shopping has already got off to a good start. In fact, with stocks lower than where many retailers would have preferred to start this holiday season, the limiting factor this year for holiday sales could be the lack of product as opposed to the means to buy it.
Morningstar real estate equity analyst Kevin Brown said total U.S. retail sales for the fourth quarter of 2021 are expected to rise 9.5% from the same period last year. This is in addition to the strong retail sales seen in the fourth quarter of 2020, which increased by more than 6% from 2019. Consumers increased their spending on goods during the 2020 holiday season as the pandemic limited spending in travel and services.
Still, while shoppers may be spending more this year, that doesn’t necessarily equate to a significant increase in gifts under the tree. While the nominal amount of spending is expected to be high, up to half of that spending could be due to the impact of inflation. In the United States, the core CPI for the fourth quarter is expected to increase 4.8% according to the Inflation Nowcasting of the Federal Reserve Bank of Cleveland.
Buyers return to vacation spending in person but still shop online
Last year, e-commerce sales in the United States rose 32% as the impact of social distancing and closures limited in-person purchases.
The amount of foot traffic in retail categories plunged in early 2020 and only returned to pre-pandemic levels this summer.
As the pandemic continues to recede, shoppers want to experience the traditional holiday shopping and activities they missed last year. As such, we expect consumers to continue to return to malls and stores. We expect US vacation sales in physical channels (excluding areas such as gasoline, motor vehicles, groceries, etc.) to grow 9.1% this year.
However, as buying habits have evolved, we still expect significant growth in online sales. We expect total e-commerce sales to increase 10.4% in the fourth quarter. The pandemic has accelerated the continuing evolution of how consumers make their buying decisions and where those sales take place.
Retailers have had to quickly learn to adapt to these changing consumer buying preferences and implement an omnichannel approach. In the future, successful retailers will need to be able to balance marketing and selling their products online and in-store. Additionally, these same retailers will also need to manage their in-store and warehouse inventory to meet this hybrid of purchasing preferences.
Limited Inventory Drives Holiday Sales Forward
In its wake, the pandemic has left a host of economic upheavals that have yet to recover; however, many other economic factors are lining up to support holiday sales.
With the stock market at its highest, wage growth rising, unemployment rate falling, high savings rates and a moderate recovery in services and travel, consumers generally have plenty of resources to spend this year. . In our view, holiday sales will not be limited by consumer spending, but by what is available to them for purchase.
Many retailers have recognized that their inventory levels are lower than they would prefer as they approach the main holiday sales season. This is due to a confluence of factors, including:
- Factories were closed across much of Asia last summer as the delta variant invaded many goods-producing countries.
- Shipping has been caught in a bottleneck at US ports. Too many ships have arrived in too little time and a record number of ships are waiting to be unloaded.
- Transport is experiencing prolonged delays. There was a shortage of truckers even before the pandemic, and the shortage of drivers has become even more critical.
Of these three problems, the maritime transport crisis was of particular concern. According to Sea-Intelligence, in August, delays between container ships continued to worsen, as “the reliability of schedules remains in the lower end of the range seen in 2021. In September, two out of three ships were behind schedule. the schedule, the number of days late also remaining. at the highest level. ”
While Black Friday has traditionally been seen as the start of the holiday sales season, this is no longer the case as sales increased at the start of the fourth quarter. Not only will this year follow this trend, but we expect an even larger number of holiday sales to have taken place in October than usual, as stockouts have been well signaled to consumers. Many shoppers started their vacation spending early this year, rather than risk finding empty shelves later in the season. As such, retailers have taken advantage of this change and marketing even earlier.
With inventory low and consumers more concerned with finding what they’re looking for than finding the lowest price, we expect fewer discounts and promotions this year than in the past. Retailers expect that by the end of the season the amount of remaining inventory will be relatively small, and they won’t have to offer big discounts after the holidays to get inventory off the shelves. This will allow retailers to charge full price or offer only minimal discounts, potentially helping them achieve some of their best margins in years.
Additionally, with the pandemic retreating and with many families planning to return to the in-person celebrations, we expect the demand for material gifts to increase. During these in-person celebrations, loved ones generally prefer to give gifts and are less inclined to give gift cards or cash. As a result, holiday sales will likely be more concentrated in the fourth quarter instead of extending into early 2022 when the gift cards are spent.
What do vacation spending trends mean for investors?
Companies that capitalize on holiday sales are likely to post particularly strong earnings this fourth quarter. However, for investors, the rising tide does not necessarily lift all boats. Across our coverage, we find that the stocks of many companies that should benefit from these selling trends already have these profits factored in, often raising their prices too far. The key for investors will be to discern which companies have reorganized their businesses to take advantage of omnichannel trends and which have not.
Once sales begin to return to more normalized levels in 2022, retailers who have not repositioned will struggle with long-term structural changes in the retail world.