A Holiday Shopping Season Like No Other

The ‘K-shaped’ recovery will definitely impact retailers this gift-giving season. Those households with stable employment could see very good holiday spending as they draw down their cash accounts which have grown to record sizes because consumers haven’t been able to spend on travel, dining or entertainment in 2020. I’d expect these households to overspend on family and friends as they try and put 2020 in the rear-view mirror. But there are also millions of households right now who have lost jobs and incomes due to COVID who will be cutting back on holiday spending given uncertainty there will be any further government assistance. Think of the airline, hotel and travel industry workers, in addition to all of those at your favorite restaurants, retailers, sports arenas and theater stages who have closed their doors.

In looking at the estimates of total dollars spent this holiday season, the numbers are all over the map. Complicating the guesstimates is the current surge in COVID activity which has led to a new round of hammering down city and state movement restrictions. The hope is that by discouraging activities today, the virus spread will slow, leading to an easing of restrictions in December. If this doesn’t occur, then brick and mortar retailers could be in for a lump of coal this holiday season.

Even if store customer counts are not limited in December by local regulations, expect little casual shopping this year. It will be a very focused grab-and-go holiday shopping season. Shoppers will know what they want ahead of time, check to see if, and where, it’s available and then will order it online for either home delivery, curbside or store pickup. Leisurely holiday shopping existed in 2019 and will return in 2021, but it won’t exist this year. My younger, clueless self who only shopped the weekend before Christmas would be in a complete pickle this year.

It was a big week for retail datapoints. The October retail sales figure came in at +0.3% which was weaker than economists were hoping for. Online sales continued to lead the way there. Walmart reported Q3 comp store sales +6.4% and its online sales grew +79% year over year. Target grew faster with Q3 comps +20.7% and online sales +155% year over year. Both Walmart, Target (and Costco) should continue to benefit as a major holiday shopping point given how customers have migrated purchases to them during COVID for the basics, and then shifted out to explore and buy their non-staples (especially apparel).

Because of the second and third waves of COVID, all retail will be disrupted for this holiday season. There won’t be a line to see Santa at the mall this year because he is also stuck at home doing live Zoom calls. The best holiday gift that America could get this year would be 350 million vaccine shots delivered to our doorsteps so that we could put 2020 behind us and party like elves in 2021. And, for those retailers who can make it through this crazy year end and into 2021, they will also enjoy the fruitcakes of all of the pent-up demand that will explode as life returns to normal. No more coal, only eggnog going forward.

I think this Boston Consulting Group analyst is spot on…

The predictions generally foresee muted sales growth, but at least it’s growth. Shenck believes retail sales are likely to be about the same as in previous years as pent-up demand gets unleashed during the holidays. “People haven’t spent on things for themselves as much and are looking for a way to celebrate with their family,” he says.

They’re likely to buy different products than in the past, however, and through different channels. Forecasters generally foresee fewer dollars devoted to experiences such as going to shows or dining out. Shoppers also won’t be traveling as much. That leaves more money for buying gifts. Shenck and others predict more dollars going toward categories such as home goods, electronics, kitchen items, and products for keeping cozy in the house, like activewear.

Many of those sales will occur online. Adobe Analytics predicts e-commerce sales will be 33% greater this year, or even higher depending on factors like a stimulus bill and store closures. Deloitte and Mastercard envision similar jumps. The surge could create problems for delivery companies as they get swamped with orders—another reason retailers have tried to get consumers shopping early for the holidays.

(Quartz)

We put this chart in Monday’s Weekly Research Briefing. It shows the pent-up demand in savings that is just waiting for a reason to be spent. Will Christmas and Hanukkah be that reason this year?

“We remain firmly of the view that the post-vaccine economy will be characterized by a massive consumer boom. It will be financed by a combination of stimulus payments and savings generated by months—it will be a year, at least by the time herd immunity is reached—of enforced cutbacks in spending on discretionary services. The scale of households’ cash build since the pandemic began is mind-boggling, with savings account balances at commercial banks and thrifts rising by a total of almost $2T in just eight months”
(Pantheon)
Savings Deposits at a Record High

This week’s weaker-than-expected October retail sales gave us a sense of the rising negative impact of COVID slowdowns…

After several months of strong growth in the aftermath of the spring lockdown, retail sales rose only 0.3% in October, the least in six months, and below the consensus of 0.5%. The slower start of Q4 coincides with a spike in COVID cases nationwide and a waning fiscal stimulus, while the labor market has yet to recover nearly half of the jobs that were lost in March and April. Prospects for a widely available COVID vaccine in 2021 would likely boost consumer confidence and spending next year. But in the short-term, growth will suffer as states are instituting localized shutdowns to reduce the virus spread.

Major retail categories were mixed last month. The biggest gain was in online sales, up 3.1%, affirming the growing market share of this retail segment. Electronics and appliance store sales rebounded 1.2%, likely driven by the introduction of iPhone 12. Vehicle and gas station sales also rose modestly. But most other retail categories declined, led by apparel and sporting goods. Our measure of discretionary retail sales and its core rose 0.4% each, also the least in six months.

(Ned Davis Research)

I thought these comments from Target’s earnings call this week were insightful into the shopping season…

  • There are consumer headwinds due to the pandemic and elevated levels of unemployment. As such, consumers have shifted spending from travel into categories that TGT sells. Co expects mix to change in Q4, with electronics and toys being strong sellers. Co has a high degree of confidence in its business to outperform the market.
  • What is the mood of consumers as we head into holiday season? TGT spends a lot of time talking to customers, they want to celebrate holiday but expect smaller gatherings. Customers have reacted to promotional plans. This season should be very different, but customers will decorate their homes and find ways to celebrate the holidays.
  • Any pull-forward sales from December to November? Co expects a prolonged holiday season, not expecting big spikes on Black Friday, sales will likely be spread out more than usual. Customers still plan to celebrate this holiday season.

Where will Target customers be shopping hard for the holiday-focused Q4?

Goldman Sachs thinks it will be in apparel, sleepwear, loungewear (also known as Zoomwear?), food (adding fresh and frozen to drive up pickup) and gaming consoles. I’d expect the toys, board games and Lego aisles to be completely picked through by the end of December also.
Target

I thought this comment regarding the Kohl’s credit card unit was an important read about consumers…

Importantly, CFO Timm interprets the all-time high payment rates as a sign of an “incredibly healthy” consumer with more openess to buy into Holiday and FY21.

Looking at retail stock performance year to date tells us something about this year’s COVID impact…

First off, Amazon is taking no prisoners. Best Buy is winning at ‘Work/School from Home’ as we buy new screens, laptops, mice and other accessories. As mentioned above, Walmart, Target and Costco are taking incredible share during COVID. Department stores like Macy’s, Nordstrom and Kohl;s have been hurt. But there will be apparel survivors; just choose wisely and be patient if you are making a long-term stock pick. Gap Stores have performed very well as a stock, even while they are expected to lose money this year. Guessing the stock must be responding to strategic actions surrounding their core store base while Old Navy keep their debt payments made.
Retail

I’ll end with a few top gift ideas…

Liberty Puzzles wooden puzzles were hot before COVID. But now you are limited to one per customer. Go check out their daily production capacity and find a favorite for someone on your list.
(Liberty Puzzles)
Liberty Puzzles

Dave Lutz says that the Solo Stove Fire Pits are a most requested gift this year. If you can’t find supply online right now, try your local REI store.
(Solo Stoves)
Solo Fire Pits

Anything “Mandalorian” was hot last holiday season. Since there has been no new movies or video content created in the last nine months, it will win again this year. But at least you can find Baby Yoda in stock this year.

Baby Yoda
(Washington Post)

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