Holiday Challenges Loom as Consumers Face Debt and Retailers Battle Rising Costs, Says Hilco Global’s Ian S. Fredericks
As the holiday shopping season peaks, Ian S. Fredericks, president of Hilco Consumer-Retail, the retail-focused group at Hilco Global, said there are a host of challenges facing consumers, retailers and online sellers on Amazon.
But there are strategies that can be deployed, he told WWD, which include leveraging “digital intelligence” and being disciplined about markdowns.
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Regarding the challenges, Fredericks said consumer stress “is coming from all directions as the holiday shopping season is upon us, and this can be expected to have a notable impact on retail performance. U.S. household debt continues to increase, driven primarily by mortgage, credit card and student loan balances.”
Fredericks said suspended student loan payments resumed at the start of the fourth quarter of this year, “which is widely expected to inhibit spending among the more than 45 million consumers still holding those debts.”
“Consumers also stand to be impacted by the recent reduction in free delivery options and return fees by many of the retailers they have frequented both in person and online in recent years,” Fredericks said. “Some retailers have also begun marking items as final sale, while others have reduced the number of days during which an item is eligible for return. In some cases, restocking and return fees are being charged even when items are returnable.”
Then there is retail shrink to contend with. Fredericks said shrink is now a serious issue for retailers, “with a continued upward trend and one of the most substantial periods of increase seen just last year and through the first three quarters of 2023. Thefts are reported up at many stores, including Walmart, Home Depot and Target, requiring more security resources and preventative theft measures, all adding substantially to operational costs.”
As a result, retailers are forced to close stores “at a more rapid rate than at any time in recent history,” he said.
In regard to Amazon sellers, Fredericks said they are “being challenged like never before by the marketplace’s increasingly costly FBA fees, which are inextricably tied to their ability to offer Prime shipping and gain competitive storefront placement.”
“To make matters worse, sellers interested in working around FBA via Amazon’s Seller Fulfilled Prime (SFP) have only recently been offered the chance to enroll in the program again and must achieve and maintain a record of 99 percent on-time order delivery to attain a Prime badge when participating via that option in the marketplace,” he said.
Looking at the rest of the online market, Fredericks made a bold observation based the firm’s work with clients.
“Beyond Amazon, our overarching view having worked with both healthy and distressed operators pre- and post-pandemic, is that e-commerce is not — and frankly never was — the silver bullet to improve retail,” he told WWD. “This challenge is particularly acute for those who were slower to invest in an e-tail platform and omnichannel integration prior to the COVID-19 outbreak. This is not to say that the online marketplace doesn’t or won’t have an important place for retailers moving ahead. Rather, it should be viewed as just another ‘store’ and must perform profitably — including all applicable costs — or be significantly scaled back.”
Fredericks added that there are “other, faster and less capital-intensive ways to drive sales while also simultaneously solving for critical industry issues such as talent retention right now.”
He said, for example, that there are new digital intelligence capabilities “that can be embedded and empowered across a retail enterprise without IT integration and in a way that, one, excites and empowers store teams and managers; two, enables flexible fulfillment opportunities, and three, generates immersive and engaging experiences for customers.”
Fredericks said this approach is well-suited right now to the store environment, “where the overwhelming amount of all retail sales have and continue to take place. Although the adoption and cultivation of technology-based intelligence in-store has been slow, its effective implementation has the potential to quickly deliver business insights that can drive more profitable business outcomes.”
With the workforce issues impacting the retail market, Fredericks said he’s seen firsthand “that skilled frontline teams are running thin, with attrition challenges continuing to plague retailers even as the holidays approach.”
“For those team members who do remain, the range of smothering responsibilities include dressing and maintaining store appearance for the holidays and effectively merchandising and refreshing items on the floor during the bustle of high volume traffic,” Fredericks said. “In addition, they are being asked to deal with buy online, pick/shop from store, and online returns, all while still being expected to assist customers in a knowledgeable and helpful way that delivers strong store conversion.”
But there are solutions, he said.
“In this challenging environment, arming these frontline workers with the type of tools and intelligence that can make them better able to fulfill their job responsibilities, help them provide and receive feedback efficiently, and gain a sense of involvement and satisfaction that all leads to improved conversion, is more critical than perhaps ever before,” Fredericks said.
He urged retailers “to commit now to educating themselves on how this type of embedded digital intelligence could benefit their store fleets and take timely steps toward implementation when they see the vast potential of what they learn from that process.”
“Critically, start the education today so you can hit the ground running early in 2024,” he said, adding that this holiday season “is not going to ‘save the year’; rather, the same problems that exist today will still be there three to four weeks from now.”
Regarding the “immediate near-term with Amazon reporting that its October Prime Day orders increased to 150 million from 100 million last year and Walmart, Target and others holding their own well-publicized discount events timed to coincide with Amazon’s, we expected that many retailers were also planning their own early discount efforts,” Fredericks said, adding that this outlook “was proven accurate as we saw even deeper than expected discounts leading up to, and over, the Black Friday shopping weekend.”
“The fact is, however, that moving up discounts to earlier in the calendar year or holiday season does not necessarily deliver incremental sales,” he said. “Rather, it is likely to simply reallocate those same sales to a different performance cycle.”
Fredericks said for retailers still finalizing or considering changes to their holiday strategies, “We would encourage minimal levels of discounting, to the extent possible, until after the season. Our current belief is that, ultimately, regardless of how much margin retailers sacrifice to ensure revenue through the end of this year, the overall outcome for 2023 is likely to be flat to slightly negative performance on an inflation-adjusted basis.”
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