There’s turmoil over tariffs, sinking consumer confidence, stock volatility, recession worries and utter confusion about what lies ahead around the world.
And then there’s Christmas.
Despite the economic, political and consumer perplexities, don’t count retailers out for holiday 2019. The prevailing thinking — for now at least — is that gift shopping will be good, generating fourth-quarter sales gains in the low, single-digit range, near last year’s gain, which the National Retail Federation put at 2.9 percent.
Retailers typically present sunny scenarios when discussing the holiday season, which for some accounts for as much as 30 percent of their annual sales. For holiday 2019, the glass seems more than half full, with store executives, suppliers and industry experts contacted by WWD over the past two weeks indicating that:
* Back-to-school business got off at a good clip, though the season is regarded as an indication, not a precise barometer, for holiday spending.
* Unemployment remains low, at 3.7 percent; average hourly earnings are up 3.2 percent, and gas prices are down 30 cents this year to $2.60 a gallon on average, but are likely to go up after crude oil prices spiked 10 percent Monday following after drone strikes on a Saudi oil facility.
* Taken all together, the consumer has been saving and remains financially healthy to spend on gifts.
“We continue to see a very stable and healthy consumer environment, and I think we’re well-positioned to take advantage of that,” said Target chairman and chief executive officer Brian Cornell. ”In both the third and the fourth quarters, we are planning to deliver comparable sales growth in line with the 3.4 percent pace we established in the second quarter. As we plan for the profitability of those sales, our guidance reflects the most recent announcements about the extent and timing of China tariffs. We’re watching this very carefully.”
“I feel good about the holiday,” said Helena Foulkes, ceo of the Hudson’s Bay Co. “Consumer sentiment is fairly strong and you can see that there are certain retailers performing really well. The only weakness we see is around our international tourists. It’s a function of global issues that started in the third quarter of last year. We will start to comp that so it will have less of an impact in the second half.”
“Retailers are in a bit of a tumultuous time,” said Russ Kahn, senior vice president of retail, Puma North America. “They’re being more conservative with the economy and with trade wars now. But we’ve had consistent growth over the past several years in retail along with wholesale and we have seen no decline for back-to-school, so I am incredibly optimistic, particularly from an outlet perspective and from the flagship perspective, that we are going to get amazing growth going through the fourth quarter.”
“We see a scenario of a 4 or 5 percent gain for the holiday, but that’s not a forecast. It’s a most likely scenario which is consistent with our back-to-school projection of a 5.1 percent total sales gain,” said Craig Johnson, president of Customer Growth Partners, which dispatches researchers to shopping venues across the country to gauge consumer sentiments.
“None of the people out there shopping that we have talked to mention tariffs or any recession,” said Johnson. “They’re out there spending, but spending wisely. The personal savings rate is about 8 percent. That’s a very healthy range. Incomes are rising. Disposable personal income is up 4.3 percent. That’s a nice healthy growth range.”
In August, retail sales overall were up 4.1 percent from August 2018, according to government statistics. Stores selling sporting goods, hobbies, musical instruments and books rose 2.1 percent; clothing and accessory stores rose 0.4 percent; general merchandisers rose 1 percent; health and personal-care stores were up 3.7 percent; home stores rose 0.1 percent, but department stores were down 5.4 percent.
According to survey data released Friday by the University of Michigan, consumers are feeling more confident about current and future economic conditions this month compared to August. “Monetary and trade policies have heightened consumer uncertainty — but not pessimism — about their future financial prospects,” wrote Richard Curtin, chief economist of the University of Michigan’s Survey of Consumers.
“My conversations across the industry show significant positive sentiment going into holiday — more on the high and low ends of the market but even mid-tier retailers are feeling good,” said Kirk Palmer, ceo of the executive search firm bearing his name. “We have six fewer days between Thanksgiving and Christmas this year [26 versus 32 last year] but I am not hearing this raised as a big issue.”
President Donald Trump did give a lift to holiday expectations by delaying till December tariffs on certain electronics, footwear, apparel and toys, some $160 billion in goods.
Still, while Trump said the delay would protect holiday shopping and won’t affect prices until 2020, the American Apparel & Footwear Association indicated that many common Christmas items and decor fell under the September round of tariffs, including holiday stockings. Last year over 40 percent of all clothing and almost 70 percent of the footwear sold in the U.S. was imported from China, according to the AAFA.
Retailers do worry over the mind-set of the consumer, with everything from Brexit and trade wars to mass shootings and climate change potentially weighing on the will to spend and shifting purchasing patterns. threatening to raise prices at the gas stations. Price increases at gas stations have a big impact on discretionary dollars and impact the spending patterns of lower and middle income consumers most, those who often frequent mass chains such as Walmart and Target.
In the past few years, retailers’ holiday promotions have started weeks ahead of Thanksgiving. They’re expected to start even earlier this year, in October, to grab market share and compensate for fewer days this year between Thanksgiving and Christmas, the period considered the traditional selling season. Stretching out the season means siphoning business out of Black Friday and Cyber Monday, and possibly hurting profit margins with aggressive, prolonged promoting.
Watch for bloated retail inventories into the new year, as stores have been taking in extra fall inventory early to beat tariffs. “Some retailers seem to be buying for next year heavier because of the tariffs,” said retail consultant Walter Loeb. “You may see somewhat higher inventories at the end of the fiscal year as retailers stocked up. But for this Christmas, most retailers will be in good shape with strong Thanksgiving promotions and good values for gift giving.”
At Macy’s, “We are expecting [inventories] to rise as we end the third quarter. We are intentionally bringing in receipts to support early November sales and the truncated holiday season,” said chairman and ceo Jeff Gennette. “We still expect to be below last year by the end of the fall season.” Gennette said Macy’s is actively discussing with vendors and suppliers on how to mitigate tariffs and minimize customer impact in 2019 as much as possible.
Imports at the nation’s major retail container ports reached unusually high numbers just before new tariffs on goods from China took effect Sept. 1 and are expected to surge again before the next round of tariffs takes effect in December, according to the monthly Global Port Tracker report released by the NRF and Hackett Associates.
“Retailers are still trying to minimize the impact of the trade war on consumers by bringing in as much merchandise as they can before each new round of tariffs takes effect and drives up prices,” NRF’s vice president for supply chain and customs policy Jonathan Gold said. “That’s the same pattern we’ve seen over the past year, but we’re very quickly going to be at the point where virtually all consumer goods will be subject to these taxes on American families. The upcoming October talks with China are an opportunity to put a stop to this escalation, repeal the tariffs that have been imposed and focus on growing the economy.”
Fifteen percent tariffs on a wide range of consumer goods from China took effect in early September and will be expanded to additional goods Dec. 15, representing a total of about $300 billion in imports, the NRF said. In addition, 25 percent tariffs on $250 billion worth of imports already imposed over the past year will increase to 30 percent on Oct. 1.
“Everybody is bullish about the season but we are all concerned about the economy. The implications of tariffs have been devastating, especially in accessories where there are 30 percent tariffs,” said one accessories manufacturer who requested anonymity. “Retailers that pre-booked orders nine or 12 months out are mostly projecting a flat to slightly up for the season. Sears, Penney’s and Macy’s are scaling back, while Kohl’s, Walmart and Target are slightly increasing open to buy.
“The off-price channel is working very close in season and looking for opportunistic buys,” the source added. “It got a little bit cold in the Northeast [after Labor Day] and that got off-pricers pretty excited. They will take goods now if early fall reads are good. But the bulk of the buys [for off-pricers] are in November. They can get deliveries two weeks later on goods in stock and also they have been leaving cold weather goods on the floor, meaning selling a lot more in January and February.”
It will be another bifurcated season of the haves and have nots. Target, Walmart, Lululemon, Aerie, Amazon, T.J. Maxx, Costco, Dick’s, Burlington, Nike and Adidas, as well as dollar stores, are seen as among the winners. Department stores, apparel specialty and mid-tier chains are not expected to fare as well. Gap Inc. is working hard to get Old Navy back on track and planning to spin it off into a public company next year, but it’s doubtful the business will pick up by holiday, where it has shined in past years with its kids business.
Industrywide, look for sneakers, boots, booties, ath-leisure, activewear, fleece, denim, outerwear, toys, health and wellness, fanny packs, multipack sets such scarves and hats together or scarves and gloves together, as best-selling categories. Electronics, including TVs and the new Apple iPhone 11 and Samsung Galaxy Note10 should be popular.
“Seasonless” clothes, which can be worn in winter or fall, or spring and summer, and garments that are versatile, having removable linings or are lightweight yet still keep you warm, will also be important sellers.
Outerwear is seen coming into stores earlier and, according to Johnson, while upscale brands such as Moncler and Canada Goose stay full price, popular-priced brands will start to be promoted in October to capture an early share of wallet.
“There is a trend toward outdoor labels with ‘camping chic,'” said another supplier who requested anonymity. “REI, The North Face and Patagonia are definitely happening. So is Moncler and Canada Goose which will stay full price but more popular-priced brands will start to be promoted in October…The potential recession — who knows how much consumers will read into that for holiday. But the season should be OK, on par with previous years. Wholesale clubs, off-pricers and online — that’s where the consumer is shopping today — and Amazon is growing at a faster rate than anyone. Department stores seem less in favor. They will be flat to down, though the children’s business is outpacing the stores overall.”
“Customers are getting more sophisticated with the way they select products and choose brands to support, and demanding greater convenience and speed in getting products,” observed Gurjit Sandhu, marketing manager at Yes Marketing, which provides tech, creative, marketing, branding and other services. “All the major retailers are feeling pressure, trying to compete with free shipping that Amazon has. They’re really rolling out ‘buy online, pickup in store’ features and doubling down to meet the expectations and needs of consumers.” Faster deliveries reduce the stress of last-minute gift shopping.
While retailers stretch out the holiday shopping season, “From the data we collected, most people were already doing the bulk of their shopping within Black Friday and Cyber Monday, though people shopping for gifts were doing a lot in November as opposed to December,” Sandhu said. “I expect that to continue.
“Most people get bombarded with e-mails about sales the week before the Thanksgiving holiday. I suggest that retailers lay it out in an expanded series, send reminders, product reveals and then the discount offers closer to Black Friday. The idea is not just to drive sales, but to drive engagement.”
KEY TRENDS FOR HOLIDAY 2020:
• Conveniences such as “buy online, pick up in stores,” curbside pickup, self-checkout, and same- or one-day delivery, are what consumers are demanding. They want to save time and money on their shopping excursions.
• Collaborations, à la Target hooking up with Disney for in-store shops, Kohl’s rolling out pickup and return points for Amazon packages, and Nordstrom having drop-off areas for Rent the Runway, will play a bigger role during the season.
• Customizing and personalizing products, offered at such stores as Muji and Bloomingdale’s, will be more important gifting destinations.
• Sneakers, ath-leisure, health and wellness, boots and fanny packs will be among the fashion categories and items most sought after.
• The holiday season will seem longer than ever, with some retailers introducing promotions as early as October and bombarding consumers for weeks and weeks with the messaging.