Don't Get Too Excited Just Yet About Retailers' Merry Holiday Sales
Discounting and promotions are likely to crimp profits
January 4, 2017 | Retail & Ecommerce
Early data on retailers’ holiday results has been rosy, with several indicators suggesting retailers rang up better-than-expected sales. But the next big question is: What did it cost them?
With consumer confidence reaching a 15-year high and the job market relatively healthy, it’s not surprising that consumers were ready to open their wallets this season.
Nevertheless, various studies have also showed consumers are ever more demanding of discounts and other promotions like free shipping, key factors that get them to make a purchase.
Retailers, which typically close their fiscal fourth quarter end of this month or early next month, are expected to see their critical holiday quarter profit decline 1.9% on average, according to Retail Metrics, a research firm that tracks Wall Street analysts’ estimates and provides retail industry research and data to institutional investors. While retail giant Wal-Mart's expected profit decline (thanks to its technology and other investments) is the key culprit contributing to the sector's decline, holiday discounting is also partly to blame, Ken Perkins, Retail Metrics president, told eMarketer. In fact, 53 retailers, or about half of the group tracked, are expected to see lower fourth-quarter profit, Perkins said.
Retail Metrics data showed overall holiday spending likely rose 4%. But same-store sales, which typically exclude results from newly opened and shuttered stores, are expected to show a rise of just 1% for the quarter.
Among the holiday winners, Perkins pointed to retailers including Amazon, beauty products seller Ulta, T.J. Maxx parent TJX, athletic gear retailer Lululemon and electronics chain Best Buy. Still, he said the firm’s December store checks generally found disappointing in-store traffic and conversions. “This has increasingly transferred the burden of sales generation to retailers’ ecommerce operations,” he said.
Retail consulting firm Conlumino’s data showed total holiday sales rose 3.8% to $196.1 billion, the biggest growth since 2011, led by a 17.1% jump in online spending. However, the firm said consumers’ heightened expectations of cheap or free shipping likely has “acted as a further damper on margins.”
“Retailers had to work hard for their gains, which likely impacted margins,” Conlumino said in a Christmas 2016 review report. “Discounts and deals were higher and kept inflation low. Retail winners will be the ones who increased volumes and share to offset margin pressure.”
Its research showed department stores and mass merchants have lost share while Amazon, off-price retailers like T.J. Maxx and dollar stores gained ground. Chains including Macy’s and Sears have both announced plans to shutter stores in 2017.
An omnichannel strategy will be crucial for brick-and-mortar retailers to win consumers’ wallet share. Almost 70% of total holiday related spending occurred in stores with both a physical and online presence as consumers routinely favor shopping with retailers that have a physical location, according to an International Council of Shopping Center’s post-holiday shopper survey released Tuesday. Among millennials, for instance, the survey showed 77% of them said it’s important to buy online from stores that have a physical presence.
The ICSC survey also pointed to better-than-expected sales: consumers spent $711 on gifts and other holiday related items on average, a 16% jump over 2015 holiday spending and 4% higher than originally expected, the survey showed. The survey found that 91% of holiday shoppers made purchases at physical stores, same as the prior year. Adding in spending on holiday-related dining and entertainment at malls, it said, the average consumer spent $897 this year.
“The convergence of physical and digital continues to be important as consumers have come to expect an integrated experience allowing them to buy products through a variety of channels,” said ICSC President and CEO Tom McGee. "The survey data proves that omnichannel retailers are the real winners this season as they offer purchasing options that satisfy the shopping behaviors of all generations.”
No comments:
Post a Comment