Holiday Shoppers in Midtown NYC

Lower commodity prices, a strong U.S. dollar and a “failure to wean consumers off of promotions” converged this past holiday shopping season to result in a 2.7 percent retail sales gain, according to AlixPartners’ just-released sales report.

The analysts said the gain was the lowest year-over-year increase since the Great Recession. The results were below the firm’s forecasted retail sales gain of 2.8 to 3.4 percent for the November and December period. “The 2.7 percent [gain] also tied for the worst increase outside of the financial crisis since 1992, which was the 2002 holiday sales gain,” the researchers said.

AlixPartners’ 2.7 percent gain is based on U.S. Census data, and is seasonally adjusted for the holiday sales period of November and December. The gain is below the National Retail Federation’s 3 percent gain for the period, which was released last week. Earlier forecasts include a 3.3 percent gain from the International Council of Shopping Centers and a 4.4 percent increase expected by Bain & Co. ShopperTrak’s retail sales estimate in December expected a 2.4 percent gain while eMarketer had a forecast that called for a 5.7 percent increase.

“As an industry, we have a practical interest in understanding potential root causes of the poor sales performance so we can best determine how we should address the changing retail landscape moving into 2016,” said Noam Paransky, director and lead analyst of the report. “After all, this holiday there were many factors that should have led to strong retail sales performance — wage improvement, savings at the pump, and the highest holiday consumer sentiment since the recession — yet we still ended up with a 2.7 percent retail sales increase. All of which begs the question: what happened?”

Deflation, for one thing. The researchers said there’s been a broad reduction in commodity prices — including crude oil. Meanwhile, the U.S. dollar also appreciated and was up 4.5 percent against the yuan during the holiday period. Third was higher sales, but at lower margins.

“Consumers are continuing to win the proverbial game of chicken with retailers,” the analysts said. “The weather created particular challenges for apparel, but if the industry in general continues to rely on comped promotions to achieve sales targets, improved margin performance will require continuous [selling, general and administrative] streamlining – which will mean corporate headcount reductions and trimming of store fleets. And this will come at the same time as retailers are being pressured to change labor scheduling tactics and to increase wages for associates.”

Regarding the weather, the report noted that climate change will likely continue impacting business. Both November and December had record-setting temperatures, and both the National Oceanographic and Atmospheric Administration and NASA said 2015 was the warmest year on record.

By segment, the research analysts said department stores were the worst-performing group this past holiday season. Moving forward, challenges abound. “Although they do have significant exposure in winter apparel, as a group they have not translated tactical supremacy into an experientially unified and immersive omnichannel experience,” the analysts said. “These retailers now face the imperative of evolving quickly in order to fend off activist investors.”

Also impacting many retail results is the shift from “buying things” to “having experiences.” Over the past five quarters, the share of household spending on dining out and on hotel accommodations has outpaced expenditures on durable and non-durable retail goods.

Regarding tactical moves retailers can deploy this year to counter these trends, the research analysts said companies need to “think holistically” while not solely focusing on omnichannel approaches. “Consumers aren’t distinguishing between your online and offline experience,” they noted. “A less-than-positive experience in one channel may very well cause them to view your entire value proposition less favorably.”

Having more “measured promotions” could also help as would experimenting with different kinds of promotions. On the operational end, evaluating store fleets is a given while also developing a better in-store shopping experience.

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