Preliminary holiday 2020 results have proven unsurprising so far: analysts expect modest year-over-year growth fueled by a massive increase in ecommerce activity across a longer-than-usual season. In fact, the impacts of the most unique holiday in decades are still being felt: retailers should plan for continued shipping delays in the short term, and also continue to refine their omnichannel operations as they prepare for the rest of 2021.
Retail sales grew 3% during the extended holiday season (Oct. 11 through Dec. 24, 2020), or 2.4% during the traditional Nov. 1 through Dec. 24 window, according to preliminary data from Mastercard SpendingPulse. Mastercard also determined that 19.7% of overall retail sales came from ecommerce, up from approximately 13.4% in 2019.
However, the larger story of holiday 2020 is still being written. The season didn’t just start early — it’s going to continue further into the following year than usual, and retailers can still benefit from these opportunities. Some considerations retailers need to keep in mind include:
- Make the most of the extra-long holiday tail: Holiday-fueled spending didn’t vanish on Dec. 25, and the combination of late deliveries and a socially distanced Super Bowl will make the post-holiday period more important than ever;
- Omnichannel will play a big role in returns: Returns spike at the end of every holiday season, and encouraging them to be made at stores or drop-off points, rather than being shipped, will be essential to maximizing revenue; and
- Use Amazon as a template for holiday success: Amazon will undoubtedly post strong Q4 results, but finer details like margin will provide insight into how much of the etailer’s success can be replicated by smaller retailers — as well as the overall state of the industry at the close of 2020.
The Holiday Season is Not Yet Over, So Don’t Rest on Your Laurels
The enormous spike in holiday ecommerce led to shipping delays during the latter part of the season, and some retailers will be sending out packages for weeks to come. Retailers expected this and warned shoppers in advance, which led to a significant shift in customer behavior. While last-minute shopping was lower than usual, post-season shopping trips can expect strong tailwinds.
“There were fewer last-minute shoppers in 2020 compared to 2019,” said Hilding Anderson, Senior Director of Strategy & Consulting at Publicis Sapient in an interview with Retail TouchPoints. “The Monday before Christmas was the No. 3 shopping day in 2019. This past year, the Monday before Christmas didn’t make the top 10. I think people knew they had to get their orders in, and a lot of retailers put out information on that as well. It changed consumer behavior and resulted in new buying habits.”
Certain items always have a long post-holiday tail, and electronics will be of particular interest this year. The category saw 6% growth year-over-year during the holiday season, according to Mastercard, and the scarcity of PlayStation 5 consoles and the allure of media devices during the continued pandemic mean sales will remain elevated in this vertical through January 2021.
“The biggest retailers out there — the Amazons, Walmarts, Costcos, Best Buys, Targets — they all do big consumer electronics business during the holiday season, and that season isn’t even close to over yet,” said Charlie O’Shea, VP and Senior Credit Officer at Moody’s in an interview with Retail TouchPoints. “We’ve got a [Big Game] coming, so in at least two cities you’re going to have a lot of TV sales. It will be interesting see what the pandemic does because a lot of pro football teams are not allowing fans. So what do you do? You buy a really nice TV on which to watch it.”
Contactless Services Can Soothe the Bite of Remote Returns
High sales volumes, particularly in ecommerce, naturally lead to high return volumes, but the pandemic has added an extra wrinkle to an already tricky challenge. A poll by Inmar Intelligence found that 67% of shoppers will prefer to ship their holiday returns this year rather than bring them to a store, which will have a noticeable impact on retailers’ processing costs.
“Commensurate with the ecommerce increase, I think we’ll see just a little bit of an elevated rate of returns,” said Anderson. “It will be further complicated by the lack of traditional store operations, which is going to put on further pressure. You’re not going to force consumers to return through the most profitable [channel], which is usually the store where you have the potential to quickly resell it.”
Retailers that have enabled curbside or otherwise contactless returns will have a leg up in meeting the needs of cautious customers without straining their processing centers, according to O’Shea. Getting shoppers to come to the store makes it far easier to convince them to follow up their return with a fresh purchase, on top of making it easier for merchants to resell unwanted items.
Overall Holiday Results Remain Uncertain, but Amazon Will Provide a Hint
A strong portent of just how Q4 2020 held up in general will be Amazon’s results, which are expected on Feb. 4, 2021. O’Shea noted that the unprecedented nature of 2020 — including both the ecommerce focus and the extended holiday season — will make direct year-over-year comparisons less reliable for measuring retail’s overall success. That means individual company results will be key pieces in the overall narrative.
Amazon’s ecommerce dominance means its revenue results will be strong no matter what, but the degree of success will offer a preview of smaller retailers’ results. Looking at margins will provide insight into whether the industry managed a healthy season despite the challenges presented by COVID-19, or whether promotions and shipping costs cut into the profitability of the most important time of the year. These are costs that Amazon can likely afford, but they could have dire consequences for struggling companies.
“Let’s see how that margin holds up, because of Amazon selling a lot of stuff at low margins, it’s not a good sign for the weaker retailers out there,” said O’Shea. “The Walmarts, Costcos, Targets and Best Buys of the world, they’ll be okay. But for the smaller, more niche, more holiday-reliant retailers with weaker credit profiles, if Amazon shows strong sales with weaker margins that doesn’t portend well for many, many retailers.”