Shopping in December and in the overall holiday period saw a shift from stores to online spending, buoyed by consumer confidence but marked by keen interest in price cuts and other forms of discounting, according to reports from research firms Retail Metrics and Conlumino emailed to Retail Dive.
Holiday spending was up 3.8% to $196.1 billion in 2016, the strongest rate of growth since 2011, Conlumino found. Physical and online channels both witnessed growth, although online spending surged by 17.1% over the prior year, Conlumino said.
Retail Metrics said Q3 same-store sales for the wider publicly traded retail industry are forecast to rise just 1%; that number slips to 0.9% when factoring out Wal-Mart Stores Inc. Retail Q4 earnings are also under pressure from discounts and rising e-commerce (which carries higher costs) with Retail Metrics analysts forecasting a 1.9% year-over-year decline following a 1.1% decrease in the fourth quarter of 2015.
This holiday quarter appears to be a story of retailers losing even as they win. Both Retail Metrics and Conlumino found that the weather cooperated, leading to robust demand for cold weather merchandise including outerwear, boots, sweaters, gloves, hats and winter athleisure. But steady discounts hit profits, and the demands of online consumers — which included low cost or free delivery — will likely further dampen margins, Conlumino noted.
That means the “retail winners” this holiday season are the ones able to leverage discounts push up their volumes, hitting margins, according to Conlumino analysts, while those “without good volume uplifts will see sharp profit declines.”
Some of the winning happened after Christmas: Dec. 26 saw healthy traffic akin to Black Friday, Retail Metrics reports. “The potential for both December and fourth quarter same-store sales surprises lie with how much business was made up in the final week, to what extent brick-and-mortar stores were able to expand their omnichannel sales gains, and to what extent retailers were able to take advantage of returns to upsell consumers,” Retail Metrics President Ken Perkins wrote in the report emailed to Retail Dive.
Retail Metrics also singled out Apple and Amazon. The latter had its best year yet, shipping more than a billion items worldwide this holiday season: Sales of voice-controlled Echo speakers were up nine times over last year, and the popular Amazon Echo Dot device sold out prior to the Christmas holiday.
“The big concern for the rest of the retail industry is the Echo devices now make it even easier to spend at Amazon through Alexa voice-controlled commands for those unconcerned with potential privacy issues,” Perkins wrote. “Coupled with rapid product delivery, [there’s] even less incentive to head out to the store or search a competitor’s website.”
That’s compounded by the fact that 72% of Amazon’s customers shopped on a mobile device, Perkins noted, which “highlights the dramatic shift in how consumers are shopping and spells further trouble for instore operations.” Data from Slice Intelligence suggests that Amazon garnered almost half of online holiday sales, while Best Buy, Wal-Mart and Apple came in with low-single digit sales. “This represents a staggering digital gap,” Perkins said.
Apple, meanwhile, experienced one of its more muted holiday periods, according to Retail Metrics, though Apple iOS mobile device sales still outpaced Google's Android. “While Apple stores were among the busier locales throughout the season, they were noticeably quieter than in previous years and dramatically slower than just three years ago,” Perkins said. Still, data from app-analytics firm MixPanel cited by Retail Metrics indicates that iPhones remain the hottest gift in smartphones, with unique iPhone 7 activations growing 13% over last year; Android devices saw just a 3% rise in activations.
Despite its own dearth of physical stores, Amazon did well in customer service and Christmas inspiration, though Wal-Mart and Target also took leading positions in a number of areas, including in-store displays, inspiration, customer service, product selection, speed of online deliveries (Target) and low prices, product selection, and cost of online delivery (Wal-Mart), according to Conlumino. And despite losing market share, department stores still perform well in some categories like in-store displays and service, Conlumino added.
Bottom line, 78% of retailers said that their own Christmas trading this year was “strong or fair” and just 22% said it was “weak,” according to Conlumino’s report. But margins were under pressure, and 69% of retailers generally saw the holiday retail environment as “strong or fair” this year.
“Overall holiday spending will likely be up in the 4% range, which represents solid growth,” Perkins noted. “Structural changes in consumption patterns (more service and experience expenditures) and spending channels (mobile/e-commerce) are unlikely to result in robust same-store sales and earnings gains for most traditional retailers."