Holiday Promos Start Way Earlier Amid High Hopes and Headwinds
Remember when retailers unleashed their Christmas gift promotions around Black Friday, or in more recent years, after Halloween? Fahgettaboudit.
This year, holiday marketing is the earliest it’s ever been. Macy’s, Nordstrom, Amazon, Target and Walmart are already into the holiday groove, issuing their lists of top toys, gifting ideas and shopping services in the last several weeks. They’re egging consumers on to buy early or risk seeing what they want sold out due to inventory shortages, or receiving their packages after Christmas.
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Retailers have decided to extend the gift promoting to help them manage through labor shortages, higher costs and supply chain bottlenecks, compounded by this year’s increased demand for products. By elongating the season, volume spikes seen on Black Friday, Cyber Monday and Super Saturday, and the final frenzied rush for last-minute gifts the week preceding Christmas, might not be as pronounced as in past years.
This year, Target issued its toy list on Aug. 23. That’s two months earlier than in 2020. Amazon issued its toy list Sept. 13, which was two weeks earlier than last year.
Amazon Prime Day was June 21 to 22 this year (compared to Oct. 13 and 14 last year, when it was delayed due to the pandemic) which triggered early holiday promotions by other retailers. Just days after its Fourth of July sale, Macy’s got into the Christmas spirit with a “Black Friday in July Sale” that ran through July 12 and included discounts up to 60 percent off and a macys.com coupon for 25 percent off, site-wide. Last Wednesday, Macy’s followed up with an announcement recommending certain holiday gifts and services like limited-edition vegan cosmetics; diamond jewelry; the Klarna buy now, pay later offer; live, interactive shopping events, and a “fragrance finder.” Fragrances, along with sweaters, boots and cold weather accessories, are popular holiday gifts and year-round one of Macy’s bestselling areas.
At Nordstrom, “Our customers are thinking about the holidays earlier than ever before and we’re giving them more time to shop to ensure they get the gifts they want on time,” a spokeswoman told WWD. “Our stores will be hosting dynamic in-store experiences that serve all our customers’ holiday needs — from holiday decor to our curated gift shops to gift wrapping.”
Nordstrom kicked off its holiday 2021 campaign on Oct. 4 with the launch of gifts on nordstrom.com and nordstromrack.com. The same day, the retailer began selling Balsam Hill artificial Christmas trees at 30 of its locations. On Oct. 18, holiday launches on nordstrom.ca in Canada and there will be holiday gift shops in select stores in Canada and the U.S. Last year, Nordstrom launched holiday on Oct. 19, both in-store and online.
“If you walk into Home Depot, you see Halloween displays on one side and Christmas ornaments on the other side,” said Tom Burns, senior executive vice president of the Doneger Group.
Whether the earlier-than-ever holiday promoting gets consumers shopping gifts sooner rather than later remains to be seen.
“None of us know how effective retailers are going to be in convincing consumers to shop that much earlier. Consumers were not conditioned to think that way,” commented Hemant Kalbag, managing director of Alvarez & Marsal’s Consumer and Retail Group.
As one retail chief executive officer said: “Customers will shop when they are ready. You can tell them to shop early but they shop when they want to shop.”
However, some fashion executives have a different perspective. “I do see people shopping. It’s a lot of self-purchasing, but I think people will be purchasing earlier because it’s in the news about shortages and consumers know about it,” said a senior merchant from an International luxury brand who requested anonymity.
Said one Seventh Avenue supplier last week: “Store shelves are looking bare. Consumers have been warned, ‘go get your Christmas gifts now.’ I’ve been seeing sell-throughs on cold weather accessories very early. It’s really surprising, considering how balmy it is outside.”
At Walmart in the U.S., “Knowing the challenges the overall supply chain system is facing, we’re taking additional steps to navigate the hurdles and minimize disruption so we can deliver for our customers this holiday season. We’ve worked with suppliers to source holiday merchandise earlier than usual and are finding ways to move those products inside our supply chain network as quickly as possible,” Joe Metzger, executive vice president, supply chain operations, wrote in a blog last Friday.
“We have been laser-focused on inventory levels since the start of the pandemic and reported higher inventory in the second quarter this year than a year ago. While we’d like to see inventory levels continue to improve, we’re on the right track,” he added.
Among the steps Walmart is taking: chartering ships and diverting shipments through less congested ports; hiring more than 3,000 drivers, with more in the pipeline; hiring 20,000 permanent supply chain positions to help move products as quickly as possible; adding storage capacity in fulfillment and distribution facilities; expanding automation to get products from distribution centers to stores faster, and routing online orders straight from stores.
“We know there is a lot of uncertainty as the pandemic continues and customer needs continue to adjust as we head into the 2021 holiday season, but I’m confident in our efforts,” said Metzger.
Nordstrom Inc.’s CEO Erik Nordstrom said during a conference call with retail analysts that there is “uncertainty in the external environment,” including continued disruptions in product flow in the supply chain and “headwinds” with rising freight costs and labor wage increases, though the company was working to ensure having the “right teams and proper levels of service” in place.
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“A real lumpiness in the global supply chain led to some shortages,” the CEO said. “There’s just an unevenness, which makes it difficult to plan inventory flow with much precision. We do not expect conditions to change anytime soon,” though he also said there were some encouraging signs for the third quarter. To mitigate the impact, he said the company is pulling forward orders, doing some air freight for holiday, and extending longer lead times. He said women’s apparel and shoes at Rack have been affected the most by merchandise shortages.
According to a Reuters report, fashion brands like Benetton are looking to get production closer to home, and shift some from Asia to countries like Serbia, Croatia, Turkey, Tunisia and Egypt. Benetton’s CEO Massimo Renon was quoted as saying, “It’s a strategic decision to have more control on the production process and also on transport costs.”
Most worrisome to retailers are shortages expected in such key gift categories as toys, outerwear, handbags, sneakers, food and electronics due to the combined impact of COVID-19, labor shortages and factory closures delaying overseas manufacturing, most significantly in Vietnam, China and Bangladesh.
“It’s not just footwear and apparel where the supply chain is particularly effected. it’s also food. It’s flowers. It’s really across the board, and it’s not just a matter of getting the goods out of countries. It’s also because of all the ships backed up at the ports,” said Kathy Bradley-Riley, senior vice president of merchandising at the Doneger Group.
“There’s also a global chip shortage. Any category that depends on chips is impacted, whether it’s washing machines, refrigerators, or XBoxes,” added Kalbag. “The shortages are more driven by where you source rather than the category itself. Vietnam, for example, had substantial shutdowns so whether you are ordering sneakers or T-shirts, that is going to have substantial impact.”
Despite the headwinds, retailers and industry experts generally expect robust holiday sales gains. Most predictions are for high, single-digit gains overall. Deloitte has forecast retail sales up 7 to 9 percent for the holiday.
Apparel sales are seen even higher. Consumers have money and are spending it. They’re going out more and looking to refresh their wardrobes for events which started up again this fall, for returning to work at their offices, and for socializing more.
Compared to 2019, Mastercard said holiday apparel sales this year will be up 17 percent; jewelry will be up 52.9 percent; luxury up 55.8 percent, and department store sales will rise 5.2 percent.
“This holiday season will be defined by early shopping, bigger price tags and digital experiences. Over the past two years, retailers have learned a lot about what shoppers want and need, bringing us into an exciting new age of retail resilience,” said Steve Sadove, senior adviser for Mastercard and former chairman and CEO of Saks Inc. “Retailers have been preparing for this moment and will find innovative ways to deliver on what’s bound to be the biggest holiday shopping season yet.”
But considering how the holiday promoting is being prolonged, retailers must reassess how they define and assess the season. It can no longer simply be conjoined with the fourth quarter.
Still, there are some experts that say holiday sales might end up lower than the forecasts, and that companies are adjusting their forecasts to reflect supply chain constraints.
“It’s not consumer demand that is driving a changing of the forecasts. It’s really the ability to supply,” said Kalbag. “Our estimate is that demand this holiday season will be between 25 to 35 percent higher than last year, which was significantly higher than the year before. During the pandemic last year, people were at home and channeled resources into shopping, because they were not really spending money on travel and eating out and other services. This is good news the the demand is so robust. The challenge for retailers is how do they not let down consumers by delays in shipping and not delivering on customer expectations. That’s what’s going to unfold over the next three months.”
Retailers will benefit by inventories being low, meaning more full price selling, though some sales will be missed due to the scarcity of product. Margins are high, and cash positions are good. There should be lower promotional activity, more so in terms of how deep discounts get rather than the frequency of promotions. Retailers need to preserve some margin because of the higher shipping and delivery costs as fuel prices continue to spike.
“We should see less promotional activity as we get into the fourth quarter. There shouldn’t be any need to have fire sales events,” said Bradley-Riley. She also said that Instead of having specific timing for putting out new floors sets, retailers are putting out merchandise when they get it, creating a different flow of goods onto the selling floors. Also, more fashion products seem seasonless, enabling retailers to sell products through more of the year. As far as her perspective on retail sales, “I don’t know that I would describe the outlook as bullish for everyone,” said Bradley-Riley. “Retailers are still very cautious. They’re very conservative.”
According to an annual holiday survey from Convey by project44, a Texas firm that provides solutions for last-mile delivery to help retailers get orders to shoppers how and when they want them, consumers this year are most concerned about out of stock items (50 percent); shipping delays (46 percent); high prices of goods (46 percent); and higher shipping costs this year than last. Of the more than 1,300 U.S. consumers surveyed, the majority (57 percent) will start shopping at the same time or later than last year, creating a Catch-22 for retailers during the most critical time of year, and only 37 percent of this group are willing to give retailers more than one or two extra days to deliver items.
The survey also indicated that most Americans state that free shipping (88 percent) and on-time delivery (88 percent) are important to the overall holiday shopping experience. Almost all (98 percent) want retailers to notify them if their delivery will be late and two-thirds (67 percent) won’t shop with a brand again after a poor delivery experience.
Nearly nine in 10 shoppers (87 percent) are likely to buy from Amazon this holiday season and eight out of 10 (79 percent) say their household has an Amazon Prime membership.
Mass merchants — Walmart, Target and Best Buy — rank a distant second at 67 percent, followed by department stores — Nordstrom, Macy’s, Dillard’s and Kohl’s — at 34 percent, according to the survey.
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The survey also found that the ability to order online and receive the item that day is important to shoppers, particularly younger ones. Forty-two percent said ordering online for same-day store pickup is important. This number rises to 54 percent of younger shoppers (defined as age 18 to 29). Thirty-six percent of respondents say that ordering online for same-day home delivery is important. This number rises to 48 percent of younger shoppers.
“Shoppers are going to put retailers to the test this year, despite awareness of the challenges sellers face,” said Carson Krieg, director of industry solutions and strategy at Convey by Project44. “Free, fast, on-time delivery is the expectation, thanks to Amazon’s dominant influence on retail. This year’s survey reveals that transparency on pricing, estimated delivery dates, and shipment delays are of utmost importance for sellers to remain competitive.”
“Retailers have been dealing with supply chain congestion for many years,” Kalbag added. “What’s unusual this year is there are external supply chain constraints exasperating the problem. So there’s congestion at major ports across the country, especially in Los Angeles. And ocean freight rates have gone up by almost 10 times, which is crazy. A 40-foot container from China to the East Coast of the U.S. would have been somewhere around $2,000. It’s shot up to almost $20,000.
“The large retailers are trying now to deploy certain strategies, offering promotions earlier in the year, to move some of the demand up. The primarily goal is essentially to ease the supply chain between now and the end of the year. Large retailers have done things like, charter ships and use other modes of transportation, which may not be strategies available to small and mid-size retailers. But overall we will still see strong results from the major retailers.”
Kalbag’s advice to his retail clients: “Don’t make promises you can’t deliver on. Don’t build your customer promise and delivery dates based on wishful thinking, be realistic. Let customers know when they are buying products on what realistic shipping timelines are. I would not be surprised if shipping times are double than in past years, if not longer. This is the right time to be strategic about pricing and promotional effectiveness which is really using data and analytics for your decision making.”
HOLIDAY 2021: TRENDS TO WATCH FOR
• Shortages across all categories, particularly key holiday merchandise like toys, fine jewelry, handbags and footwear.
• An elongated season, with retailers extending holiday campaigns.
• Retailers press consumers to start and finish gift shopping earlier than years past.
• Brands and retailers get more transparent on ordering deadlines to get packages before Christmas Eve.
• Tamer price promotions and greater full price selling, preserving margins.
• Shopping continues brisk through 2021.
• Big retailers report strong retail sales and profits despite headwinds.
• Spending in 2022 shifts to travel, dining out and other experiences as COVID-19 cases decline.
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