As COVID-19 pandemic restrictions cooled off in 2022, many retailers may have hoped for a less complicated Black Friday this year.

But brewing up a new battle for both brands and consumers, inflation took the stage months before the shopping event began.

Heading into the holiday, some estimates showed that while in-store shopping could make a return, inflation (which was up 7.7% in October according to the Consumer Price Index) could thwart consumer spending, as shoppers expected to get less for more money. 

Predictions showed higher-income shoppers tightening their budgets, and discretionary spending at some big retailers decreased throughout the year as consumers dealt with rising grocery bills.

Several retailers lowered their outlook for this quarter before the shopping event even started. Target tightened its Q4 outlook in November after earnings came in below expectations, and e-commerce native ThredUp did the same despite its focus being on secondhand goods — a category that could normally do well for consumers looking to save.

All of this laid the groundwork for a not-so-joyous holiday season for shoppers. That said, Adobe Analytics data shows that online spending on Black Friday this year reached $9.12 billion, up 2.3% year over year. 

The picture of how the retail industry performed is more complex than a single number. Given the macroeconomic pressures consumers face right now, it is hard to say that any winners in retail will remain so for the rest of the season. But some trends stood out.

Here's how retailers actually fared during the industry's most highly-anticipated holiday.

Winner: Buy now, pay later … sort of

Thanksgiving and Black Friday may have been great days to be a buy now, pay later service provider. Given the economic pressures many shoppers face right now, BNPL payment options offered a way for consumers to still get the goods they wanted.

Black Friday predictions from Deloitte projected increased use of these services, with 48% of survey respondents saying they planned to use credit cards and 37% expecting to use BNPL.

On Thanksgiving Day, online BNPL revenue increased by 1.3% year over year and orders were up 0.7%, according to Adobe data. More telling is that some shoppers are using BNPL for lower-priced goods instead of high-ticket items, with the average order value for BNPL purchases decreasing in the U.S. by 6% on Thanksgiving, according to data from Salesforce. 

Orders using BNPL rose by 78% the week of Nov. 19 to Nov. 25 when compared to the week before, according to Adobe. Additionally, overall revenue from BNPL is up 81% during the same period.

“It's a positive sign in the immediate term, that consumers are looking to extend their wallet further and do more,” Rod Sides, global leader at Deloitte Insights, told Retail Dive.

But that immediate-term positive is a red flag in the long term, according to Sides, who added “we now have much higher interest rates, and they're gonna start to hit any credit card balances. With buy now, pay later, it tells you the consumer is challenged ... in the long term, it's a warning sign.”

Loser: Long lines

The days of long lines and fights over highly sought-after products may really be dead.

While in-store shopping was more in focus this year due to loosening COVID-19 restrictions, that doesn’t mean there was a return to the old chaos of Black Friday shopping. Several analysts noted that traffic was brisk and certainly apparent at a variety of stores, but didn’t have the long wait lines the holiday used to be infamous for.

“People have been shopping today. We’d expected brisk traffic and big sales numbers. We got the brisk traffic, and we’ll soon know if that translated into positive numbers for the retailers,” Katherine Black, partner in the consumer practice of Kearney, said in emailed comments Friday evening. “In Raleigh, [North Carolina] we visited a wide range of stores (Target, Best Buy, Macy’s, Bass Pro Shop) and while all of them had shopper traffic, none of them had early morning lines, or completely full parking lots or long lines.”

The avoidance of such lines this Black Friday could have contributed to the use of BOPIS, according to Salesforce, which said the service option was trending 20% higher on Black Friday compared to all other days this season.

With e-commerce still strong this year, Sides thinks it can still go head-to-head with in-store shopping as consumers’ preferences settle in after the highs of the pandemic. 

“Folks have gotten used to online and their perception is that you'll get the same deal in the store and online,” said Sides. “What that says is that the consumer is finding different ways to shop and it's really about whatever suits them best.”

Winner: Electronics

Digital cameras, smartphones and other higher-priced electronics saw some consumer interest during Thanksgiving and Black Friday. Key electronics retailers like Best Buy have been battling the impact inflation has had on discretionary purchases this year, leading to slumping sales and an increased need for markdowns leading up to the holiday.

“That category was somewhat of a challenge for a while, just because of the purchasing behaviors that happened during the pandemic that a lot of us did not expect necessarily," said Sides.

Shoppers were drawn in by larger discounts for electronics on Thanksgiving, per Adobe. For Black Friday, the group expected larger discounts on electronics to reach 27%, computers at 18% and televisions at 13%.

Electronics and accessories was one of the most popular categories to shop for globally on Black Friday, according to data from Salesforce, which said the category was up 19% as of Friday evening. Meanwhile, Adobe’s final numbers for Black Friday showed that smart home items and audio equipment saw online sales jump by over 200% compared to the average day in October.

“This is likely driven from consumers holding out for larger deals,” Vivek Pandya, lead analyst with Adobe Digital Insights, told Retail Dive via email. “We are seeing an uptick in digital cameras and smart speakers in the electronics category and expect to see more momentum the closer we get to Cyber Monday, as discounts will reach their strongest levels on that day.”

Loser: Inventory levels

Despite consumer interest in categories with increased inventory levels, inventory might remain high into the near future according to some analysts.

“Simply put, there’s only so many big screen TVs a household can acquire over a period of two-three years. So those retailers who acted on the assumption of continued growth in such categories may have difficulty moving high excess inventory even with deep discounts,” Inna Kuznetsova, CEO of supply chain optimization firm ToolsGroup, said in emailed comments. “Given the number of unknowns in both supply and demand, it may be difficult to project the time of resolution. Yet, by the nature of retail, it is natural to assume that a lot of goods may end up with deep discounters or even in landfills to clear space for new models and new season collections.”

In addition to electronics, toy companies like Hasbro saw inventory issues throughout 2022 heading into the shopping season. In October, the toy giant reported a 31% hit to its operating profit within its consumer products division, in part due to inventory buildup.

Toys sales online during Black Friday were up 285% compared to the average day in October, per Adobe. As for Thanksgiving Day, Salesforce reported toys and learning sales were the third highest performing vertical globally, up 10% year over year.

Sides at Deloitte also predicts inventory woes may continue into the new year for most categories despite the strong sales during Thanksgiving Day and Black Friday. 

When asked if retailers can expect any relief from the challenges they’ve faced throughout 2022 during this shopping season, Sides said it really depends.

“I think the mass stores will do really well. That’s what [consumers] told us about where they plan to shop,” said Sides. “I think there'll be some relief for some and others will signal just not-so-great times, so it's gonna be a challenge for sure.”

Winner: Mobile commerce

Mobile commerce was a big hit for shoppers this time around, especially on Thanksgiving when consumers may have wanted to shop more discreetly and casually during family gatherings.

On Thanksgiving, mobile shopping accounted for 55% of online retail sales, an all-time high and an increase of 8.3% year over year, per Adobe. On Black Friday, mobile hit another record, reaching 48% of all online sales compared to 44% in 2021.

“Mobile online spend was likely driven by the desire to make purchases from anywhere,” Pandya said. “It is also reflective of growing trust in smartphone transactions and improvements in mobile online experiences (compared to past years where consumers chose to shop on their computers).”

Loser: Curbside pickup

A look at curbside pickup on Thanksgiving and Black Friday compared to last year shows that consumer sentiment about in-store shopping is a mixed bag.

On Black Friday, curbside pickup was used in 13% of all online orders for retailers that offer the service, according to Adobe. That is a decrease from 21% last year. So far this month, from Nov. 1 to Nov. 24, curbside pickup was used in 19% of all online orders. The analytics group said it expects curbside pickup to peak from Dec. 22 to Dec. 23.

Curbside pickup did perform better on Black Friday and Thanksgiving compared to other shopping days this season so far. Comparing Nov. 19 to Nov. 25 to the week before, curbside was up 54%. 

Stores are decked out in decorations with holiday music playing, and inboxes are filled with marketing emails from retailers. 

It’s the holiday season, and like other years during the pandemic, companies are met with a new challenge: For 2022, that’s inflation.

For months, consumers have grappled with rising prices across all goods, particularly at the grocery store and gas pump. That’s affected consumers’ mindsets heading into the holiday shopping season. According to an ICSC holiday survey released last month, nearly 90% of respondents reported that inflation would affect their holiday spending.

During a period that’s generally filled with gift-buying, joy and discovery, retailers need to navigate how to market to consumers this season.

What’s top of mind for consumers right now

The theme of this year’s holiday season, so far, appears to be discounts and promotions.

While consumers are estimated to spend 6.7% more during the holidays this year compared to 2021, 43% are looking for deals and promotions, according to the ICSC. And 65% of respondents plan to spend more time looking for discounts, per the survey.

The economic environment has even prompted 71% of consumers to consider store payments plans or other financing options to cover their purchases this season, according to a separate report from Oracle Retail. A quarter of those respondents have never used financing options in the past.

“The consumer is feeling it,” Michael Brown, a partner and Americas Retail Leader at Kearney, said. “They've been feeling it for a while now because the price of groceries has been up and gas has been up and it hits people hard.”

When faced with financial constraints, “there's this urge to limit the pains,” according to Jorge Barraza, a professor of consumer psychology at the University of Southern California. Consumers adopt “coping strategies,” which include wanting to reduce, and they will then adapt to changes and become attuned to it, he added. Because consumers have been dealing with higher prices and other economic uncertainty for some time, they are in the adapting stage and are seeking out lower prices for the goods they’ll buy.

Retailers have been answering this call by launching Black Friday-like sales events earlier in the season and having deals extend for longer. Amazon in October held its second sales event of 2022 for Prime members. Walmart and Target similarly launched their own deal days around that period as well. And Walmart late last month announced its three-week “Black Friday Deals for Days” event would return with discounts spanning from Nov. 7 to Nov. 25.

“This year, I think what the customer sentiment is, you know, the economy is flipped,” said Tyler Higgins, a retail practice lead and managing director at AArete, adding that a looming recession and news of layoffs are also affecting consumers’ mindsets heading into this holiday shopping season. “You just feel this negative tone. So you’re starting to see the shift: People are going to really care about what they spend every dollar on.”

But retailers need to strike the right balance. Inundate consumers with too many deals and retailers run the risk of hurting their brand identity, according to Barraza. “If I start discounting and that feels like it's more of a permanent and prolonged thing, you start shape-shifting the way that consumers are perceiving your brand.”

Promotions are really the most effective when paired with the element of scarcity, Barraza added. And if retailers continuously push out deals throughout the season, “consumers are going to be worn out,” he added. “They're going to have this enduring expectation that this is how it's going to be moving forward.”

How retailers can respond

While value is a priority for consumers this year, it doesn’t mean the storytelling element to holiday marketing needs to go by the wayside. Retailers just need to be in tune with what consumers are saying right now and understanding what their pain points are, according to Kearney’s Brown.

“Retail especially doesn't shy away from the hard messages. It's kind of how they play on the emotional side. They have no problem saying, ‘Yeah, the world's in a tough spot’ or ‘The economy's in a hard spot. We know you're feeling this,’” Higgins said. “Retailers kind of cut through it and are willing to just say the hard message, but then also try to come up with a solution to that through their campaign.”

For its holiday campaign this year, Lego gave creative control over to children to have them highlight what the season means to them. 

“Rather than picture-perfect shots of snow, exquisitely set tables full of festive feasts, and crackling open fires, the children chose to design, build and bring to life a playful vehicle to help them deliver presents and bring the community together over the Holiday season,” the company said.

The campaign’s narrative underscores the importance of bringing people together through play during the holidays.

“At the Lego Group, children are our role models — they inspire us with their creativity, curiosity and imagination, so who better to turn to for our Holiday campaign,” Julia Goldin, chief product and marketing officer at the Lego Group, said in a statement. “Our new campaign is a celebration of the creative power and optimism that children possess. They see endless possibilities for play and show us the difference play can make to the world as they rebuild it for the better. We want to inspire people of all ages to prioritise play over perfection and unleash a childlike joy this Holiday season.”

Retailers can also use nostalgia to their benefit this holiday season to help “pull for the heartstrings in a positive way,” according to Barraza, adding that eliciting nostalgia and using a campaign’s narrative to transport consumers to a simpler time can foster feelings of connectedness.

For years brands have been tapping into cultural moments or icons to effectively use nostalgia in their campaigns.

In 2011, Aleve debuted a campaign called “Kris’s Day,” which portrays Santa struggling with pain the night before Christmas. In lieu of traditional cookies, someone leaves Aleve out for him and he is able to continue on with less pain. 

“A great part about that is it's almost this thing that is a character we have connections with. We understand that this is fantasy, it's not reality, but it has elements of nostalgia or cultural connection, and storytelling,” Barraza said. “It all kind of comes together in a way that is going to kind of be a lot more stickier and a lot more emotional, and a lot more nostalgic for consumers.”

What retailers are highlighting in their ads have changed over the past several holiday seasons during the pandemic: In 2020, a lot of marketing focused on making connections with loved ones even from a distance, while 2021 centered on things like having items in stock following a year of supply chain chaos.

As the season progresses this year, deals will continue to be an important aspect of retailers’ messaging, but companies may begin to lean more into the storytelling side of marketing as it gets closer to the holidays.

“This element around value can only last so long,” Barraza said. “November is the expectation of value. And December is a little more about that ‘warmth’ and ‘feels.’ So we're definitely going to see a lot more of that shift moving forward.”

While consumers are faced with financial challenges this season, there’s a desire to lean into those holiday traditions, which for many includes buying gifts for family and loved ones.

“This is a special kind of season for people. Their behaviors are not going to be shifting substantially — there's still the desire to buy gifts and to engage in the same kind of shopping behaviors as they have,” Barraza said. “But they're going to have different things that are going to be in their focus.”

The backdrop of this holiday season looks quite different than last year’s.

While many consumers have adopted a sense of pre-pandemic normalcy with in-store shopping, inflation has largely hampered the industry’s success in 2022 so far.

Some reports expect that holiday sales growth will slow this year compared to last, with Deloitte estimating growth between 4% and 6% in 2022 compared to an increase of 15.1% during last year’s period. Meanwhile, Mastercard’s latest estimates expect U.S. growth at 7.1%, but noted that inflation will play a role in consumer expectations for discounts.

“This holiday season, consumers may find themselves looking for ways to navigate the inflationary environment – from searching for deals to making trade-offs that allow for extra room in their gift-giving budgets,” Michelle Meyer, U.S. chief economist at the Mastercard Economics Institute, said in a statement.

Retailers seem to be listening to that need, with both Amazon and Target launching early holiday deals beginning in October. Brands are also looking for new partnerships to entice buyers this season, with Target signing an exclusive multiyear deal with toy company FAO Schwarz and Macy’s getting a limited-edition holiday release from Kylie Cosmetics.

With this unique economic environment, some retailers are hiring more than others in preparation for the season. Here’s a look at companies’ holiday hiring announcements so far.

Nordstrom

Nordstrom is planning to hire 20,000 employees ahead of the holidays. That includes positions across its Nordstrom and Nordstrom Rack stores, as well as the department store’s supply chain facilities and customer care team. Last year, the department store hoped to hire 28,600 seasonal and regular employees across the U.S. and Canada.

J.C. Penney

J.C. Penney on Oct. 6 said it has nearly 22,000 seasonal positions to fill this year and will be offering employment “on the spot” during its national hiring event Oct. 12 to 15, conducted in stores and online. 

The department store noted that it’s closed on Thanksgiving and Christmas Day, and hourly associates in all stores receive additional pay when they work on Black Friday, or Saturdays and Sundays during peak holiday weekends. Otherwise the retailer promises shift flexibility, along with personal wellness days, referral bonuses and some daycare services. Associates receive discounts of up to 25%, and seasonal hires have an opportunity to stay on for continued employment after the holidays.

Amazon

Amazon on Oct. 6 said it will hire 150,000 employees in full-time, part-time and seasonal positions across the U.S. The company is looking for employees to fulfill stowing, picking, packing, sorting and shipping positions within its operations network. The e-commerce giant is offering signing bonuses of up to $3,000 in select areas and is paying more than $19 per hour on average, according to a company announcement.

Walmart

This year’s holiday hiring efforts from Walmart look quite different than 2021. The company’s hiring for the 2022 season slowed to 40,000 additional associates, which is down about 75% from the 150,000 hired last year.

Walmart plans to hire positions ranging from seasonal store associates to full-time, permanent truck drivers. Current associates will be offered more hours for the holidays.

The retailer also announced new return options and windows for the holiday season, including a return pickup from home for Walmart+ members.

Target

Target is keeping its hiring plans steady this year, once again planning to bring on up to 100,000 seasonal employees to help out at its stores and supply chain facilities. Applications are online, where the company touts competitive pay, including a $15 starting wage, flexible scheduling, a 10% discount, free mental health support, virtual doctor visits and free flu vaccines.

Dick’s Sporting Goods

Dick’s Sporting Goods plans to hire up to 9,000 seasonal associates this year, according to a company press release. The outdoors retailer will kick off recruitment by holding its fifth annual "National Signing Day" on Sept. 28.

For its second-quarter results in August, CEO Lauren Hobart had indicated that the company had no problems with labor market issues plaguing the industry, noting that both stores and distribution centers were staffed well ahead of the holiday season.

In addition to having Thanksgiving off, associates have access to a 25% store discount. The retailer is hiring across its portfolio at Dick’s Sporting Goods, Public Lands, Field & Stream and Going, Going, Gone! stores across the country.

Macy’s 

This year, Macy’s is framing its holiday hiring plans differently, counting positions rather than people. The department store this week said it’s working to fill more than 41,000 full- and part-time seasonal positions at its Macy’s, Bloomingdale’s and Bluemercury stores, supply chain locations and call centers.

Last year, the company said it would hire some 76,000 full- and part-time employees for the season, but that included more than 10,300 who transferred to permanent positions as well as those who worked only part of the season, according to a company spokesperson.

Macy’s said that nearly a third of its store leadership started their careers during the holiday season. Pay starts at $15 an hour, with access to flexible scheduling that could include optional overtime. Employees get a discount and may be able to earn extra income through various programs. The company has information about both online or in-person hiring events at macysJOBS.com, bloomingdalesJOBS.com and bluemercury.com; and says most job offers are made within 48 hours. The first holiday hiring event is Oct. 6.

Kohl’s

Kohl’s is preparing for the busy holiday season by hiring thousands of seasonal employees across its stores, fulfillment and distribution centers. Although the company wouldn’t say exactly how many employees it would bring on, a spokesperson told the Milwaukee Business Journal that the number would be comparable to last year’s number of 90,000.

“To ensure we’re keeping up with our customers’ needs, we will again leverage our distribution centers, e-commerce fulfillment centers, and more than 1,100 stores to deliver a seamless holiday shopping experience, whether customers choose to shop in-store or online,” the company said on a corporate blog post. 

UPS

UPS announced in September that it plans to hire more than 100,000 seasonal employees in time for the holiday rush. The jobs include delivery, drivers with a commercial driver’s license, package handlers and driver helpers. Permanent positions are also available.

Earlier this year, UPS reported a 3% drop in U.S. daily volume year over year. The dip was equal to 611,000 packages daily.

Party City

Party City said it will hire 20,000 employees in time for the holidays. The party retailer said employees will work in 750 Party City stores and 150 Halloween City pop-ups nationwide, and touted flexible hours, competitive wages and a 30% employee discount. The retailer held a national hiring event on Aug. 30 at all stores.

Party City was forced to lower its guidance this year after it took hits to its sales and profit margins due to a helium shortage.

Still, the company said it expects to offer permanent employment to approximately 10% to 15% of the temporary employees at the end of the season.

Michaels

Arts and crafts retailer Michaels announced it will hire 15,000 seasonal employees in the U.S. and Canada ahead of the 2022 holiday season. Candidates can apply online or in person during hiring events.

The company emphasized flexible hours and a 30% discount in a “dynamic and supportive work environment.” More than half of the seasonal employees were offered permanent positions last year, according to a company press release.

“Everything we do is for our makers, and our seasonal team members are integral to this mission,” Joe Venezia, chief operating officer and executive vice president of stores, said in a statement . “We know there’s no more important time than the holidays to give all Makers a single destination for all of the inspiration, supplies, componentry, decor and gifts they need to celebrate the season, and we’re ready to knock it out of the park this year.”

Before gifts can make it under holiday trees this year, they are going to have to pass through one of the largest-scale traffic jams modern supply chains have ever experienced.

In the U.S., the industry is not fretting over customer demand headed into the shopping season. Deloitte estimates holiday sales could increase this year by as much as 9%, which would come on top of relatively strong growth last year that surprised pretty much everybody. AlixPartners is even more optimistic, forecasting 10% to 13% sales growth. 

But to state the obvious: Before retailers can make their sales, they need stuff to sell. That's where the trouble is this year. Container ships are packed, ports are clogged, contracts with carriers are falling to the wayside. And the rush to ship goods for the holidays is only adding traffic to what was already intense congestion. 

"There aren't enough containers. There aren't enough ships. There aren't enough trucks or trains. There is more volume now than any part of the supply chain pipe can adequately handle," Burlington Stores Chief Financial Officer John Crimmins told analysts in late August. Trying to accelerate and pull forward orders "even further increased the pressure on the supply chain, helping to drive even higher rates," the executive added.

So not only are retailers competing with each other for sales, they are competing just to get cargo space to ship goods into the country. Freight has skyrocketed as a result, and shipments still lag or even fail to materialize. Many of the bottlenecks are tied to the unexpectedly swift surge in consumer demand in the U.S. this year, combined with capacity shortfalls at numerous points along the supply chain. 

Those reductions stem from COVID-19 outbreaks at ports and factories, as well as capacity taken offline last year as demand plummeted and retailers and brands canceled orders. In a study by FTI Consulting, 67% of retail companies agreed that supply chains have been permanently disrupted from COVID-19. 

"It's going to be a rough holiday, and I think it's going to be a holiday unlike anything we've seen before," Matt Garfield, a managing director in FTI's retail and consumer products practice, said in an interview. "We're going to see a lot of bare shelves." 

A 'perfect storm for empty shelves'

Even stocking holiday decor could be a challenge for retailers. Chris Butler, CEO of decoration wholesaler National Tree Company, sees a "perfect storm for empty shelves" come Thanksgiving when holiday decorations often go up. 

Butler cited custom research for his company showing 80% of surveyed consumers expect more parties and decorations this year compared to 2020. At the same time, fires and drought have hurt the supply of natural Christmas trees, and all the supply chain issues facing other categories are slowing the shipments of artificial trees into the country. 

Where last year National Tree Company was paying $2,000 to $3,000 for ocean-bound shipping containers, now the rates have hit as much as $25,000. The company opted to pay those rates and ship most (90%) of the inventory it expected for the season. 

Some competitors, according to Butler, held off shipping, hoping for lower rates only to find rates still high. Yet carrier space remains just as crimped ever, and inventory is stuck in Chinese factories. Meanwhile, retailers are starting to panic as they try to bring in seasonal decor, Butler said. 

"I think there's definitely going to be empty shelves," Butler added. "We know there are retailers that aren't able to get even half of what they wanted."

According to a report from consulting and research firm Berkeley Research Group, the supply chain logjams mean that "many items are in shorter supply than normal, so the selection of hot/trendy products and the depth of promotional discounts will likely be less prevalent." 

With the prospect of lower inventory levels, retailers should be prepared to market and sell gift cards, the report's authors write. They also see inflation as "a looming issue" hanging over the season. 

A presentation from liquidation and restructuring specialist Malfitano Partners noted that inventory shortages are likely going to be a ubiquitous problem in retail this holiday season. 

"This dynamic will likely lead to one of the most expensive holiday shopping seasons for consumers," the report noted. "With less inventory, retailers will be forced to hold the line on discounts to maximize margin on the units they have available to sell in order to bring in the required revenue for the season." 

In an interview, Joseph Malfitano, founder and managing member of Malfitano Partners, said retailers could begin burning cash in the early months of next year as supply remains constrained and the cost of inventory high, with little room in margins for discounts and less demand post-holiday. For the less-capitalized retailers, that set of conditions could cause financial distress. 

"That could be where the rubber meets the road," Malfitano said. "You get into Q1, and people are going to start burning some money."

'Unprecedented efforts'

The pain will not be spread out evenly in retail. As Garfield pointed out, larger retailers like Walmart, Home Depot and Ikea have chartered their own ships to ensure goods get delivered.

Others have spent what would in past years have been unthinkable amounts of money to fly product in by air freight, usually a transportation mode of last resort for many companies. Executives at Nordstrom, Gap Inc., Tapestry and others have all told analysts they were taking on air freight costs to bypass bottlenecks in ocean freight. 

"We've seen some really drastic and unprecedented efforts by some of these retailers to try and deal with the supply chain," Garfield said. 

Larger, high volume, well-capitalized retailers can absorb those costs and sway their vendor base in ways that mid-tier and smaller retailers often can't. Smaller players will have to stock what they can and lay off the deals that are the hallmarks of the shopping season. 

"We're going to see a lot less promotional activity this year as retailers are trying to recoup some of the margin that they're losing across the board," Garfield said, adding that prices on consumers are "one of the few levers that you can adjust in this market."

In the end, even large retailers will struggle to hold on to their margins and keep their shelves fully stocked for the holiday season. Historically a major draw for Black Friday sales, many consumer electronics could be especially in short supply this season, Garfield noted. "We've been seeing that across multiple outlets," Garfield said. "You just can't get your hands on those electronics these days." 

For those who wait until the final days before Christmas to buy gifts, "You're going to have a really rough holiday season," Garfield added.

Last year was a great one for many if not most in and connected to the retail industry, except for its restructuring experts. (But don’t worry about them — the bankruptcy lawyers and consultants had a sensational 2020.)

Revlon and Olympia Sports aside, bankruptcies remain slow after years of “apocalypse” and the surge in the pandemic’s first year. The travails of 2020 pulled forward many bankruptcies that might have happened this year or next. Those reorganized were (theoretically) left with cleaner balance sheets, trimmed store footprints and stronger financial positions.

Yet retail is a big industry with many players, not all of them on solid footing. Consumers are still capricious. The digital transformation is ongoing and expensive to adapt to. Supply chains are complicated and difficult to master, or even fully understand. COVID-19 is still with us. Demand is as difficult to predict today as it ever was.

With stimulus payments gone, consumers under pressure from inflation, capital markets tighter and business inputs still expensive, the financially or operationally weaker players who rode a wave of high demand and a quiet promotional environment are at risk once again. 

In a summer report on vulnerable retailers, Creditntell cited high inflation, falling demand and “bloated” inventory levels as pressures on margins and profits. 

“Potentially the biggest stumbling block will be the consumer,” Albert Furst, chief operating officer of Creditntell, said in an interview.   

One proprietary measure of bankruptcy risk in the market comes from CreditRiskMonitor’s FRISK scores, which specifically measure the probability of a company filing for bankruptcy within 12 months. The scores factor in various data, including trading volatility, financial metrics and analytics from the firm’s own platform that is often used by company credit managers.

This time last year the retail companies that carried the very lowest FRISK scores, indicating the highest risk of bankruptcy, numbered just three.

As of Sept. 30 this year, the number had surged to 18, a cohort size much more in line with pre-pandemic risk levels. Of that, nine retailers had a FRISK score of 1, indicating a 9.99% to 50% chance of filing for bankruptcy within the next 12 months.

Another nine had a FRISK score of 2, representing a 4% to 9.99% chance of bankruptcy by CreditRiskMonitor’s calculations.

Among those companies with the lowest scores are digitally savvy operators that held initial public offerings in recent years, including The RealReal, Stitch Fix, ThredUp and Digital Brands Group. That perhaps should not come as a surprise, given the slump in apparel amid inflation on food and gas as well as the high expenses of e-commerce and the losses many digital darlings racked up before (and after) going public.  

FRISK scores only cover those companies with publicly traded stocks or bonds. Credit ratings and other measures of default risk turn up other names as well.

Those with the lowest ratings from Creditntell include, as of July, Tuesday Morning, Party City, GameStop, Rite Aid, Bed Bath & Beyond, Casper and Joann.

Meanwhile, Fitch Ratings’ most recent lists of loans of concern include a handful of retailers, including Belk, Men’s Wearhouse, Boardriders and Premier Brands Group (a reorganized incarnation of the old Nine West Holdings).

Here’s a closer look at some of those most at risk:

Bed Bath & Beyond

Bed Bath & Beyond has been on a roller coaster since the pandemic began. When consumers first turned to the homes they were stuck in during the days of social distancing, the retailer’s sales boomed and a long-sought turnaround appeared to be taking hold.

But supply chain issues last year and then a drop in discretionary spending in 2022 sent sales and profits spiraling. Mark Tritton, who came from Target to lead Bed Bath & Beyond as CEO starting in 2019, left the company after an abysmal quarterly earnings report this summer.

Reports from the Wall Street Journal detailed the failed efforts of Tritton to juice up Bed Bath & Beyond’s private label offering. Analysts have pointed to strategic flaws and a botched execution of Tritton’s turnaround plan as well as underlying weakness that preceded Tritton.

“I think [Tritton] did way too much way too soon,” Furst said. “And he did it during the supply chain challenges.”

Now there is a leadership vacuum on top of macroeconomic and operational challenges, with Tritton gone, a permanent CEO yet to be selected, the death by suicide of Chief Financial Officer Gustavo Arnal, and the elimination of the operating chief and store chief roles.

As it tries once again to turn itself around, Bed Bath & Beyond has new debt financing as well as a plan to close over 150 stores and lay off staff to cut expenses.

“They’ve got a lot to rectify really fast,” Furst said.

Tuesday Morning

One of the first innovators of the off-price model, Tuesday Morning went into bankruptcy in 2020, after years of losses and middling sales as it tried to compete with the off-price giants. Its Chapter 11 also followed a sharp drop in its revenue in the early months of COVID-19.

The company shed stores and gained new debt financing in bankruptcy and exited last year. But amid global economic headwinds, Tuesday Morning in May revised down its sales expectations and projected an adjusted EBITDA loss of up to $29 million for its current fiscal year. S&P Global Market Intelligence has listed it among the most vulnerable retail companies.

In the company’s most recent period, it reported comp sales growth of 8% while its gross margin rate compressed by more than seven percentage points and its operating loss increased by more than $10 million from last year.

In September, Tuesday Morning struck a deal with Retail Ecommerce Ventures — owner of the Pier 1, Radioshack, Stein Mart and other retail brands — that provides $32 million in new debt, some of which can be converted to equity, and which will pay down some of its existing debt and fund a move into e-commerce and omnichannel retail.

As part of the agreement with REV, Tuesday Morning will get access to the latter’s digital platform and the rights to sell products from the Pier 1 brand, which REV acquired in 2020.

The investment could be a hopeful sign, at least for the near term. “I assume with that investment, there’s no plan to file within months, if you’re going to drop money into it,” Furst said. “Different companies have different issues. They were never a balance sheet problem. They were always an operational problem.”

Furst also noted that Tuesday Morning’s lot didn’t improve much after trimming its store base in bankruptcy or during the surge in home goods sales during the pandemic. As for the introduction of Pier 1 products via REV: “What was the demand for Pier 1 before? Will a store within a store help that much?” Furst said.

Party City

Party City went into the pandemic with financial and competitive concerns. A one-time leveraged buyout, it still carries a heavy debt load. Digital players and generalists have been eating into its brick-and-mortar Halloween City business since 2019. A foray into toys, after Toys R Us liquidated, didn’t take.

And then the pandemic happened. The company’s core business revolves around parties and social celebrations. The health risks of just being around people led to a cratering in the company’s sales.

While parties and sales emerged from their pandemic lows, to an extent, Party City has also grappled with helium shortages, inflated operating costs and other challenges. In the second quarter, the company’s retail sales fell 4.6% while gross profit margin shrunk by 680 basis points.

Compounding challenges such as freight and helium costs have been “a sales slowdown attributed to consumers traveling more and taking celebrations on the road, as well as lapping government stimulus and the reopening of the country last year,” Telsey Advisory Group analysts said in an August note. Against the tough environment, the company had lowered its guidance for the year.

The RealReal

The RealReal is part of a cohort of e-commerce specialists to go public in recent years despite a history of loss-making. The company’s revenue grew more than 40% between 2018 and 2020, but the luxury resale marketplace struggled during the pandemic and the apparel slump that came with it. The company also weathered reputational issues when its authentication process faced scrutiny.

This year, founder Julie Wainwright stepped down abruptly from the CEO role after 11 years as the company turns more attention to profitability.

Unlike others in the digital space, The RealReal has been adding staff after labor shortfalls led to trouble acquiring inventory. In its most recent reporting period, the company’s revenue increased by 47%, yet average order value was down as customers traded down to less expensive items in the face of inflation.

Executives told analysts that they expected a surge in apparel demand late in the pandemic to subside eventually, but that it happened faster than anticipated.

Wayfair

Wayfair has become a force in the home goods realm. Few can rival it in e-commerce home goods sales. Yet for most of its life, the company has lost money.

The year 2020 was an exception. Wayfair brought in more than $360 million in operating profit. Prior to that, the company posted a net loss for every year it has ever reported publicly, going back to 2011. And even the profits it made in 2020, when home goods sales and e-commerce were booming, came with a razor-thin operating margin.

Last year, Wayfair was back in the red. By July of this year, the company was the only e-commerce retailer to lose revenue among the top in the sector, according to GlobalData.

“There is a fundamental weakness in Wayfair’s business model: It needs considerably larger volumes and many more regular customers to attain profitability,” GlobalData Managing Director Neil Saunders said at the time. “Now [that] demand is normalizing, Wayfair is back to making eye-watering losses.”

In August, the company announced a 10% cut to its corporate staff as e-commerce continued its slowdown and Wayfair looked to rein in costs. The company said then that it was also working to make “substantial reductions” to third-party labor costs.

“We were seeing the tailwinds of the pandemic accelerate the adoption of ecommerce shopping, and I personally pushed hard to hire a strong team to support that growth,” Wayfair CEO Niraj Shah wrote in a note to employees at the time of the announced layoffs. “This year, that growth has not materialized as we had anticipated. Our team is too large for the environment we are now in, and unfortunately we need to adjust.”

For all its challenges and history of losses, Wayfair’s market cap remained near $4 billion at the end of September, a sign that the market still has confidence in Wayfair’s potential for profitability.

Digital Brands 

Less than a year after going public, Digital Brands Group dropped language into its Securities and Exchange filings that it may have to file for bankruptcy without additional capital.

While the company has raised new funds since then, it has amassed extensive losses. Digital Brands is built around its acquisition philosophy, by which it aims to become an expansive style shop for consumers and potentially move into new categories as well. But acquisitions are expensive, and the company has yet to show it can make its model profitable.

Moreover, Digital Brands has also been sued by creditors over late payments. This spring, one of those creditors demanded that Digital Brands put its expansion plans on hold until it was paid for goods shipped years ago, in 2019 and 2020.

Digital Brands said in June that it was moving closer to the closing of its deal to acquire the apparel brand Sundry, which made nearly $23 million in revenue last year. 

The company in Q2 made $3.7 million in revenue while its operating loss, at about $10.7 million, decreased slightly from last year. After Nasdaq threatened to delist Digital Brand’s stock, the company was granted, after a hearing, until Jan. 17 to comply with the stock market’s listing requirements.

With the wave of COVID-19 pandemic restrictions and store closures at its end, 2022 has largely meant a return to brick-and-mortar retail.

Given the pullback in e-commerce spend and retailers losing sales amid inflationary pressures, overall technology budgets might not be at the height they once were. This leaves in-store innovation in a predicament.

Global retail technology investment dropped 43% to $13.2 billion in Q2 2022 compared to about $23 billion in Q1 2022, according to a report from CB Insights in July. Additionally, retail tech deals were down 21% quarter over quarter, and only seven companies went public compared to 11 in the previous quarter.

However, in-store technology and innovation aren’t exactly dead. Shoppers may have eased their online buying habits to a degree, but brick-and-mortar stores aren’t immune to the longevity of digital transformation. In fact, the store management technology sector saw an increase in funding during Q2 with a 25% quarter-over-quarter bump to $3 billion compared to $2.4 billion in Q1, according to CB Insights.

Retailers can still benefit from innovating with convenience and might want to look at in-store personalization to differentiate themselves in the market, according to a Deloitte report from Rob Harrold and Adam York.

What types of technology brought convenience and personalization to the in-store experience this year? And which ones have the potential to stick around?

1. BOPIS

Buy online, pick up in store services continue to be sought after even as pandemic restrictions have waned. In March, data from Insider Intelligence predicted that U.S. shoppers will spend $95.87 million on BOPIS this year — a 19.4% increase year over year.

BOPIS, which is sometimes known as click and collect, seemed like a win-win during pandemic restrictions, as shoppers could support physical brick-and-mortar stores without having to spend time in closed public spaces.

The holidays have the potential to show BOPIS’ strength. This season 39% of shoppers expect BOPIS to account for 50% or more of their shopping, according to a report by Bluedot shared with Retail Dive.

That said, overall interest has somewhat decreased since 2020. About 78% of shoppers plan to use BOPIS in some regard this season, which is down slightly from 81% in 2020, according to Bluedot.

Not all consumers are more likely to use the option though. Millennial males in urban environments are more likely to use BOPIS, according to data from Morning Consult. Shoppers in higher-income households are also more inclined to use this purchasing option.

While several retailers added BOPIS and have reported positive results from the service — including Target, Sally Beauty and Office Depot — others are just now jumping on board. Five Below last month released its own buy online, pick up in store program.

BOPIS requires technology or a system that makes it efficient and successful for all parties involved, which is something many retailers are focused on.

Retailers are “starting to think about productivity, efficiency and cost that is top of mind for everybody,” Lokesh Ohri, a principal in Deloitte’s digital practice, told Retail Dive. “Buy online, pickup in store and all the tech involved around doing that efficiently at the store level, either picking front of house or backup backroom … has stuck around and is scaling pretty fast.”

2. QR codes

That weird little black-and-white square that looks like a Rorschach test? Yes, retailers — not just restaurants — are using those. 

QR codes are square barcodes that can be scanned using mobile phone cameras to be directed to more information or payment portals. The technology was actually invented decades ago, but quickly garnered adoption during the COVID-19 pandemic when menus and person-to-person payments were pushed aside.

“It's become ubiquitous in the market,” Ohri said. “But if you and I were speaking seven years ago, there wasn't this big hype about QR codes.”

QR codes have the potential to be a way in which customers can discover more information about a product, according to Ohri, who added it “gives them better insights into buying that product, into making that decision and into comparing information across other products.”

In January, Walmart launched an interactive store prototype at its incubator location in Arkansas that featured QR codes along with other in-store technology to help “create opportunities for digital exploration,” the company said at the time. Instacart last month began rolling out QR codes as part of an expanded connected technology suite of products with partner retailers. Additionally, Amazon included the technology in its first fashion retail location this May, where the codes provide more information on sizes and reviews. 

These cases show that QR codes can deliver personalization for shoppers who might want recommendations based on what they’re inquiring about, but also create a level of convenience for associates who can spend more of their time on operational tasks.

3. Store operations

In line with Ohri’s belief that retailers are thinking more about efficiency and productivity, the technology behind store management and operations continues to grow.

That encompasses anything from technology that helps automate tasks — freeing up labor — to using more data-driven approaches to understanding stock levels.

The top equity deals in the retail store management sector for Q1 this year involved a $500 million deal for inventory optimization company Relex Solutions, according to another CB Insights from April. Retail unicorn Swiftly Systems — an e-commerce technology company now focusing on brick-and-mortar optimization — got its second $100 million investment in September. For Q2, a wholesale marketplace platform for retailers to connect with brands took the top spot in the quarter with $416 million.

Labor management is top of mind for everyone right now with the potential to use technology for cost savings, according to Ohri. 

“They're looking at labor management, communication, compliance store tasks, store audits, and using digital tools to simplify, as well as standardize those activities,” Ohri said. “So things that used to take 11 to 13 hours to do are now taking eight hours to do.”

A unique approach to store management technology is Lowe’s digital twin store. In September, the home improvement retailer announced it was experimenting with a digital replica of a store where associates can interact with and visualize store data. The concept was first introduced to two locations and allows associates to use augmented reality headsets for a variety of tasks, such as viewing items available on higher shelves instead of needing to climb a ladder.

4. Fitting room enhancements

Plenty of brands have experimented this year with enhancing the fitting room experience.

H&M started using a smart mirror in some COS stores in May, where customers can get personalized styling recommendations from the mirror as it senses what products — including their size and color — shoppers brought in. Customers can request new items to be sent to their dressing room without needing to leave the space. The retailer also started testing mirrors on the showroom floor that can assist with virtual try-ons, as well as returns.

Similarly, Savage x Fenty opened its first store in Las Vegas this January, which has fitting rooms with digital kiosks that shoppers can use to scan products to check prices and see similar items. 

This approach might be considered a way to free up associate time. However, it might not be that simple despite its increased adoption.

“I don't see virtual fitting rooms work as well as we can always want them to work,” Ohri said. “I find that anyone who's ever deployed them … they will tell you that the number of associate activities actually didn't go down. Because first, consumers need to learn how to use that tablet, because it's usually not as intuitive. Second, they need help with the products that they have anyway. And third, they're kind of really concerned about the data and the privacy. So it actually has increased associated tasks at store rather than reduce them.”

UPS announced its surcharges for the 2022 peak season on Friday, which will impact high-volume shippers expecting elevated home delivery demand during the holidays.

Beginning Oct. 30, customers billed for more than 20,000 packages any week after October 2021 will see a “Peak/Demand Surcharge” applied to certain UPS Air Residential, Ground Residential and SurePost shipments, according to the carrier. The fee will be active until Jan. 14, 2023.

The surcharge is applied on a weekly basis to all packages over 105% of the baseline volume for each service. The baseline volume is the customer's average weekly volume from June 5 through July 2 for the applicable shipping service. But UPS will use the average weekly volume from Sept. 4 to Oct. 2 instead if it is less than 80% of the June-July period's volume.

UPS will charge shippers the highest applicable surcharge they reach. For example, if a customer ships 175% of their baseline shipping volume for the Ground Residential service in a given week, they will be charged $2 for all packages that go above 105% in baseline volume.

UPS is also raising its per-package surcharges for additional handling (from $3.50 to $6.50), large packages ($40 to $70) and packages in excess of its maximum shipping limits (no charge to $400) on qualifying customers. The new prices for these surcharges are active from Oct. 2 until Jan. 14, 2023.

UPS' surcharge reveal follows fellow parcel delivery giants FedEx and the Postal Service, which both announced cost hikes of their own. Amazon is also rolling out its inaugural peak season fee on its fulfillment services for third-party sellers.

Welcome to The Backroom, a window into what goes on behind the scenes as the Retail Dive team covers the stories and trends reshaping retail. You can check out all our podcast episodes (past and present) here and listen on Apple Podcasts, Stitcher, iHeartRadio and Spotify. 

In 2022, many in the retail industry allowed themselves a degree of optimism not possible during the height of the pandemic. The macroeconomic backdrop turned sunny after 2021's clouds of uncertainty. The federal government’s support of consumers bulked up savings that lasted into the new year, and vaccines against COVID-19 spurred demand for clothing as people returned to in-person work, fun — and shopping. Holiday sales in 2021 were robust, and many chains did brisk business into the first quarter.

But inflation spikes also seen in 2021 have continued into the year, squeezing household budgets and undermining discretionary spending. While healthy employment and wage growth have mitigated that somewhat, retailers now cater to a very practical consumer who is careful about spending, seeking out good prices and tossing loyalty out the window if it means a good deal.

In this episode of The Backroom, we take a look at what this all means for the holiday selling season. It’s worth noting that retailers are also grappling with higher costs, ongoing snafus in their supply chains and other challenges, which reporters and editors from Retail Dive, Marketing Dive, Supply Chain Dive and Payments Dive will delve into during our Oct. 6 webinar, “Signed, Sealed, Delivered,” so be sure to sign up!

Resource links:

• Rising prices have made shoppers choosey, budget-minded and less loyal — but they’re still spending
• Amazon, Target kick off holiday sales early
• Shoppers await price hikes, seek discounts ahead of the holidays: survey

Inflation has been the story of the summer for any retailer selling discretionary goods, as higher prices on essentials have led to swift, stark shifts in shopping behavior. But retail sales in July — up nearly 10% since last year and a little better than flat since June, according to numbers from the Commerce Department — indicate that consumer spending has held up despite record inflation.

It helped that gas prices last month began edging down, leaving more cash in people’s wallets. Plus the numbers look better than they really are because the federal government doesn’t adjust them for inflation. But they do include the first real gain in volume — actual goods sold — in three months, according to research from Wells Fargo economists.

“Overall, demand is not falling off a cliff and our view that retail is landing softly remains,” GlobalData Managing Director Neil Saunders said in emailed comments.

Natalie Kotlyar, national leader of the retail and consumer products practice at consultancy BDO, said she is not surprised to see retail holding steady in recent months. But there are also signs that retailers will be dealing with a changed consumer for the foreseeable future, she and others say.

”There is an interesting phenomenon going on right now with inflation rates increasing and customers continuing to spend on discretionary goods,” Kotlyar said in emailed comments. “Summer vacations are certainly a driver of this, as are the relatively strong performances of off-price retailers. Consumers are finding a way to get the products they want and need for a price they are comfortable paying. This tells me that while consumers are willing to spend, they’re savvy – they are looking for savings when and where they can.”

That includes waiting for markdowns and switching brands, according to researchers at rewards marketing platform Blackhawk Network, who found that 46% of consumers they surveyed are buying more things on sale, and 22% say they’re buying less from their favorite brands.

Shoppers were careful in July, foregoing purchases, especially bigger-ticket items, per GlobalData research. And they went online, where they could easily find the best deals and conserve gas by staying home. While e-commerce growth had been ebbing this year as shoppers returned to stores, in July online sales rose nearly 30% from a year ago.

The question for retailers as the holidays loom is whether consumers’ fragile strength can hold. Wells Fargo economists Tim Quinlan and Shannon Seery said in a research note Wednesday that their staying power should last into Labor Day, but that once kids return to school and bills come due, households will begin to tighten their belts.

“Even as inflation is showing signs of moderating, it will do so only slowly,” they said.

If so, consumer budgets will shrink again as winter approaches and energy bills rise, according to GlobalData’s Saunders. The traditional autumn lift in apparel sales may be elusive this year, in part because winter and fall clothing tends to be more expensive than summer garb, he said.

Consumer retrenchment has been happening at the same time that retailers’ own expenses are up, pressuring margins and profits, Saunders also warned. That has already led to dramatic inventory adjustments and even layoffs in the industry.

“Equally, with lower volumes coming through, the spoils are being spread more thinly which is why there is now quite a variance in sales performance between various retailers,” he said. “Unfortunately, we see both these trends continuing to be in play until at least the year end.”

The consumer predicament that has scrambled demand and disrupted loyalty will be testing retailers as they begin to merchandise their stores for their all-important back-to-school and holiday seasons.

“The volatile economy could put a halt to consumer spending ahead of these critical times for retailers,” BDO’s Kotlyar said. “Alternatively, retailers may find that sweet spot with their customers where they’re aligned with product availability and cost, and then the sales will come and the margins will follow.”

Consumers are retrenching in the face of the delta variant of the coronavirus, with 20% "highly optimistic" about a return to normal, down from a third at the beginning of summer 2021, according to Numerator research. Nearly 60% are "very or somewhat concerned" about holiday plans being disrupted by the pandemic, Berkeley Research Group found.

After waning this year, troublesome uncertainty is gaining strength, as the delta variant of the virus spreads and immunization rates in many areas falter. The number of people who said they had resumed pre-COVID behaviors fell for the first time, from 39% in July 2021 to 27% in August, Numerator said. Nearly half say they expect a full reopening to be delayed until 2022 or later, up from 23% who said so in July and 18% in June, the firm found. 

The comfort level of shopping without a mask dropped 15 percentage points from July to August, with 34% preferring to go in stores with mask requirements and 36% having a higher level of respect for businesses that enforce mask wearing, per Numerator research. 

Wells Fargo economists noted that new COVID-19 cases were averaging about 100,000 daily at the time of their August 2021 economic outlook report, but had risen to more than 150,000 per day at the time of their September report. 

"As a result, Americans have generally become more cautious," they noted.

To address the renewed strength of the disease and its risks to health, life and the economy, President Joe Biden last week announced an unprecedented move to require large businesses to vaccinate their employees or have any unvaccinated employees produce a negative test at least weekly.

In the meantime, many consumers are falling back into their cautious pandemic ways. That includes shopping online more: Nearly 60% will use a mix of online and in-person shopping for the holidays, but just 13% plan to shop entirely in physical stores, while 24% plan to shop entirely online, Berkeley Research Group found.

Pandemic-related declines in tourism and office work that affect retail are also surging again. Numerator found that comfort with traveling for leisure declined seven percentage points from July to August. And the number of employees telecommuting due to COVID-19 rose 400,000 in August, the first increase in work-from-home since late last year, according to the National Association of Real Estate Investment Trusts.

The backsliding is occuring as retailers prepare for the holiday season, which for many can make or break their year. Services like curbside pickup are likely to regain their importance, according to Forrester Principal Analyst Brendan Witcher, speaking by phone.

The delta strain's impact is also being felt on the supply side, with several retailers reporting rising freight costs and inventory constraints. Retailers should be prepared not only to offer omnichannel services but also to sell a lot of gift cards.

"We don't see these problems easing up before the holidays, so retailers will need to be creative in how they attract shoppers given the strain on popular items," Darren Morrison, a managing director at Berkeley Research Group, said in a statement.