Black Friday Preview: Uncertainty Rising
As retailers head into the thick of holiday selling, uncertainty over how the season will play out is at its apogee.
Across the board, retailers have cited a slowdown in spending since October, compounding what’s been a year of angst over bloated inventories; labor shortages; inflation; stock market volatility; declining savings, and a shift to greater spending on experiences and essentials like food, travel and restaurants, and less on discretionary items such as fashion.
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A more “normal” pre-pandemic pattern of spending is settling in and that won’t help retailers this holiday season, particularly in comparison to last year’s results, which soared 14 percent amid full price selling.
To overcome this year’s macro headwinds and growing consumer frugality, retailers have been flooding the market with early Black Friday deals and discounts that are expected to only accelerate with bigger price cuts on the actual Black Friday and through Cyber Week.
On Monday, Gap advertised 40 percent off and “really big deals” from $10. Saks advertised a designer sale for up to 50 percent off, plus an extra 40 percent off select styles. Lands’ End was offering up to 70 percent off certain items if shoppers used an online code that was provided.
Over the weekend, Nordstrom offered Black Friday deals running through Nov. 29, including an Adidas hoodie, 45 percent off, down to $29.95; 30 percent off Nike running shoes, $69.96 from $100, as well as store label no-iron men’s dress shirts up to 40 percent off. Rent the Runway staged a Black Friday “35 percent off everything” sale.
Consumers are back to playing the shopper waiting game. Last year, widespread merchandise shortages motivated them to do a lot of shopping in October. They feared retailers would run out of the gifts they wanted to buy. But this year, most retailers are overloaded with inventory and Americans know it and expect that will lead to sharper discounts.
“Retailers are once again playing the game of discount chicken, where they execute earlier promotions to drum up demand, only to have consumers wait for that last and biggest deal during Cyber Week,” said Rob Garf, vice president and general manager of retail for Salesforce, the big software company for applications providing customer relationship management, sales, customer service, marketing automation, analytics and application development.
“Early season online traffic was strong, but online sales were soft. This means while consumers browsed online early in the season, they didn’t necessarily bite on the uninspiring deals,” said Garf. “Rather than pulling back on discounts, retailers can find success now by focusing on automation and productivity gains to reduce costs and combat increasing margin pressure.”
Stores have tepid holiday expectations. Ross, the nation’s second-largest offpricer, expects fourth-quarter same-store sales to be flat to down 2 percent on top of a 9 percent gain in the year-ago period. The company is still hiring for the holiday season.
Kohl’s saw its business soften in late October and early November and pinned the shift to a later start to the holiday season compared with last year, when shoppers were racing to get goods amid inventory shortages and supply chain backups. Consequently Kohl’s pulled its sales outlook for the year, meaning it no longer stands by the projection it made in August this year for a 5 to 6 percent sales decline.
“A year ago everybody was talking about the supply chain, spooking customers into early shopping. If you didn’t buy it right away, there would be nothing left for Christmas. This year, with all the press about inventory gluts, there are no concerns about running out of inventory before the holiday,” Jeff Gennette, Macy’s Inc. chairman and chief executive officer, told WWD in an interview last week.
Still, with the increasing uncertainty around how much Americans will spend on gifts this holiday season, “We will take the required markdowns so we are clean heading into 2023,” Gennette said. “For everybody, with the cumulative effect of inflation, you need to be mindful of the amount of inventory that is out there. I feel good about the way we can react and what we can control.”
Macy’s sales in the three-month period ended Oct. 29 declined 3.9 percent to $5.23 billion from $5.44 billion a year ago, but inched up 1.1 percent from the third quarter of 2019. Comparable third-quarter sales this year were down 2.7 percent on an owned-plus-licensed basis.
Target is now anticipating low-single-digit declines in comparable sales during the holiday shopping season. “In the latter weeks of the quarter, sales and profit trends softened meaningfully, with guests’ shopping behavior increasingly impacted by inflation, rising interest rates and economic uncertainty,” Brian Cornell, chairman and CEO of Target Corp., said in a statement. “This resulted in a third-quarter profit performance well below our expectations.
“While we’re ready to deliver exceptional value for our guests this holiday season, supported by the decisive inventory actions we took earlier this year, the rapidly evolving consumer environment means we’re planning the balance of the year more conservatively,” Cornell said.
Klarna, the Swedish fintech company that provides online financial services including buy now, pay later, surveyed 17,390 consumers in 17 countries during October and November. Sixty-seven percent of those surveyed said they will buy something during Black Friday and during the week of Black Friday. Twenty-five percent of the field indicated that they are sure they will buy something during Black Friday week. The buy now, pay later platform collaborated with Nepa, a research company that helps retailers make marketing decisions on the survey and contacted those who use Klarna and those that don’t.
According to data from Affirm, which also operates a buy now, pay later platform, nine in 10 of Americans plan to shop for the holidays this year, yet one in three will do so without saving any money beforehand. “Staying in budget is the top concern for 69 percent of Americans who are stressed about holiday shopping. Fifty-three percent of Americans are setting New Year’s resolutions related to their finances, and saving money is the number-one New Year’s resolution for 42 percent of Gen-Zers and 28 percent of Millennials,” Affirm reported.
Nathan Shenck, managing director and partner, North America lead for the retail sector at the Boston Consulting Group, citing its 2022 Black Friday Consumer Sentiment Report, said, “Travel and entertainment are likely to benefit from Black Friday with respectively 56 percent and 34 percent net spend increase from last year.”
The report, which in October surveyed over 9,000 consumers in Australia, Austria, France, Germany, Italy, Spain, Switzerland, the U.K. and the U.S., indicated that Boomers are the only category not prioritizing travel as their top Black Friday spend, with 62 percent of them planning to shop furniture and home décor this season.
“The sentiment in general is muted,” added Jessica Distler, managing director, partner in BCG’s consumer goods and retail practice, speaking about consumers globally. “Inflation across the board is the top topic. The war in Ukraine continues, consumers are anxious about the economic impact, because in Europe the conflict is just at their front door, and the energy crisis in particular is of concern, especially in Germany, which was buying a lot of its energy from Russia.”
Based on the research, BCG sees two major trends in consumer spending impacting the holiday season — trading down and buying less. “Close to 40 percent of consumers we surveyed globally are buying more at discounters or value retailers and 35 percent would choose more affordable brands, especially in food where they will buy more private-label product, and 20 percent mentioned they will buy more secondhand product.
“The second thing is that they are buying less. Close to 40 to 50 percent are eating into their savings, in general in their day-to-day spending and cutting back on nonessential purchases.”
Globally, spending on Black Friday promotions through this week will be down 15 percent, though in the U.S. it’s seen as up 6 percent, according to Distler.
Digital commerce data from Salesforce confirmed that early online holiday sales, covering the period from Oct. 1 through Nov. 14, softened compared to a year ago. The sales were flat in the U.S., and down 7 percent globally. But online traffic was modestly elevated during that period, rising 3 percent in the U.S. and 1 percent globally, suggesting that people were doing more browsing than actual shopping for holiday gifts, and holding back for potentially bigger bargains ahead.
According to Salesforce, the highest discounts over the last six weeks were seen in home appliances, handbags, apparel, luggage and beauty.
Since 2020, prices in the U.S. are currently up 14 percent on average, and 8 percent globally. “Even with discounts, consumers are still paying more than they did two years ago,” Salesforce indicated in its report.
There is some silver lining.
Compared to last year’s extended holiday season, when spending patterns seemed more even over a longer period, there could be a spike in shopping come Black Friday and Cyber Week, as price promotions accelerate.
Also positive for retailers are sales of dressier styles, which are on the upswing as people get back into special occasions, parties, going out and family gatherings.
Sales of travel-related products, such as luggage and packable fashions, are also performing well, along with outdoor gear and outerwear as the weather turns colder.
The weather in the weekend ahead looks generally good for traffic in the malls and stores.
According to Planalytics, which consults retailers with weather forecasts to help them in their planning, a system will bring rain across the Northern Tier and Eastern U.S. through midweek and into Thanksgiving Day while North Central regions will likely see some snow with this system. A drier trend in the West will allow consumers to enjoy outdoor activities and parades on Thanksgiving.
The Black Friday weekend will bring warmer temperatures across the Western U.S., while another cold push will sweep across the Central and Eastern regions. Some precipitation is expected over the holiday weekend in the Midwest, Northeast, and Pacific Northwest. Travelers and holiday shoppers across the West will enjoy mostly dry conditions.
“There may be some rain, but we don’t expect to see any real traffic-limiting weather, like an all-day rain storm or snow. Malls and outlet centers should do well,” said Evan Gold, executive vice president of Planalytics, discussing the Black Friday weekend.
The weather through the weekend, Gold added, “should be good for seasonal items. The weekend ahead will be similar or colder than a year ago in a lot of major markets. The coldest temperatures will be in the Central regions, year over year.”
According to a recent survey published by the National Retail Federation, an estimated 166 million people are planning to shop from Thanksgiving Day through Cyber Monday this year, which is almost 8 million more people than last year.
In addition, the luxury business is expected to continue strong, though not as vibrant as last year, because the affluent don’t react to inflationary pricing to the degree that low- and middle-income families do.
“This holiday season, we expect that the return to in-person celebrations will gain steam as the pandemic becomes less of a concern among the public. However, for businesses that are heavily reliant on holiday spending, the combination of high inflation and a sluggish economy are poised to dampen gift-giving this year,” said Dave Sekera, Morningstar’s chief U.S. market strategist, in a report issued last week.
“We forecast fourth-quarter total modified retail sales will only rise 3.2 percent this year as compared with the fourth quarter last year, when they rose 14.1 percent. Brick-and-mortar sales will only increase by 1 percent whereas online sales will grow 8.5 percent. With inflation running at 7.7 percent annualized rate, our forecast projects that real sales on goods will decrease on an inflation-adjusted basis.
“In the apparel segment, we suspect that a glut of inventory will result in deep discounting to clear out the excess inventory and, as such, margins will drop well below last year’s historically high levels,” Sekera wrote. “Both Kohl’s and Macy’s are up against tough year-over-year comparisons; however, for investors who can look through this season’s difficulties, they may see, as we do, that both stocks are undervalued.
“As for Gap, it has suffered through a very difficult year, but sales appear to be stabilizing and management has laid out plans to address its key problems. Discounting is likely to affect its margins in the holiday season, but it is cutting operating costs and shipping rates are falling, so margins should begin to recover going into 2023. Gap’s best opportunities are in Old Navy, which has new leadership, and Athleta, which should benefit from the same women’s athleisure trend that has propelled Lululemon.”
WHAT TO WATCH FOR ON BLACK FRIDAY WEEKEND
Sharper price cuts
Low-to-midsingle-digit sales gains at best
Mall and outlet center traffic picking up
Outerwear, boots, luggage, dress-up styles selling best
Margin pressures mounting
Labor shortages impacting service levels
