By David Moin and Vicki M. Young
with contributions from Evan Clark
 on November 8, 2016
Coresight Research

As holiday shopping creeps ever earlier, retailers are stepping up targeted promotions while saving their real firepower for closer to the true season.

Retail industry executives say there is no reason to panic yet about holiday even as consumers remain reluctant to splurge on apparel and accessories. One of the main reasons is the distraction created by one of the most bizarre and divisive presidential elections ever. But now that a winner should be decided today, retailers expect consumers to hit the stores and web sites and begin their real holiday spending.

Wall Street was looking past the election on Monday, with the Dow Jones Industrial Average up 371.32 points, or 2.1 percent, to 18,259.60 as Hillary Clinton’s campaign strengthened after the Federal Bureau of Investigation cleared her of mishandling classified emails, for a second time. Investors are generally change-averse and Trump is seen as more of a wildcard and potential market destabilizer.

Retailers benefiting most from the relief rally were: Fossil Group Inc., up 5.2 percent to $26.92; Gap Inc., 4.7 percent to $26.97; Tiffany & Co., 4.3 percent to $76.09; Amazon.com Inc., 4 percent to $784.93, and Ascena Retail Group Inc., 3.9 percent to $5.04.

Nomura analyst Simeon Siegel noted that Fossil Group Inc., L Brands Inc. and Kate Spade & Co. all just came out with quarterly updates that showed “very clean inventories” as well as “meaningful gross-margin erosion.”

“It appears that those companies — and I suspect others — are critically focused on the clean inventory part of that equation,” Siegel said. “It’s eroding profitability because it’s essentially ‘be clean at all costs.’”

He said many companies are finding that they have to ultimately sell goods for lower prices than management intended, whether it be in their own stores, online or through various off-price channels.

“The consumer’s the winner and that’s probably not a trend that goes away,” he said. Last week, Amazon unleashed “Black Friday” deals early and Wal-Mart Stores Inc. kicked in some of its own, casting a perception that price promoting was about to click in big time. The perception is fueled by retailers getting more omnichannel in orientation and using their digital channels to raise the visibility of their price promotions.

While price promoting is a necessary evil in retailing, most stores say they are keeping discounting on par with a year ago, that there’s no need to slash prices right now and that the discounts currently on offer were engineered for profitability well in advance.

Still, according to pricing intelligence firm Market Track, the October “creep” study of more than 100 top holiday products showed a 6 percent decrease in the average listing price on Oct. 31 from the week prior on Oct. 24.

When comparing feature advertisement discounts by category for October 2016 versus October 2015, Market Track said discounts were steeper this year: Footwear at 16 percent off; kids apparel, 13 percent; cosmetics, 11 percent; intimates-accessories, 8 percent; jewelry, 7 percent, and women’s apparel, 1 percent.

Fluent Research in a report said the holiday shopping season starts “sooner and sooner.” It noted that one in three, or 34 percent, of Americans started holiday shopping before Sept. 1, with 53 percent saying they planned to start shopping before November.

Only 20 percent said they will start shopping for holiday in December. Nearly three in 10 said they plan to finish their holiday shopping by the end of November, and of those who started shopping by October, 70 percent planned to wrap up their holiday shopping by December.

Even as Christmas shopping now starts for many consumers before Halloween, there is a consensus among industry executives that inventories are under control, holiday sales should be up around 3 percent, anticipated colder weather should spark coat and cold-weather accessories businesses and that the consumer is more equipped to spend due to rising employment and wages and low gas prices.

Those trends are why retailers and analysts believe it’s too soon to drive holiday traffic via sharp markdowns, though stores have their kitschy Christmas sweaters on display and tree-trimming shops up and running already.

“It’s too early to panic,” one retail chief executive officer told WWD. “Every year, Christmas shopping comes later and later. If anyone is breaking price, they are panicking way too early. Most people think they will have a better view into the consumer buying behavior after this election. We all expect the season to come late and come hard at the end.”

“I don’t see any abnormal behavior in regards to price cutting,” said Tom McGee, ceo of the International Council of Shopping Centers. The ICSC expects a “robust” holiday shopping season, forecasting retail sales to be up 3.3 percent. ICSC will issue the results of a survey next week, indicating no price advantage to shopping online versus in stores, McGee said. The survey examines 540 products from different sectors and shows “no price advantage at all to shopping online,” McGee said.

“Nothing is being forced. The promotional cadence is similar, though it still continues to be a highly value-driven, price-promotional environment. But desperation is not in the air,” observed Arnold Aronson, partner and managing director of retail strategies at Kurt Salmon.

“The bottom line could be better, inventory levels have been cut significantly from last year and the chance for the weather to be more favorable than last year’s disaster could help the more profitable categories like jackets, sweaters, gloves,” Aronson said.

Craig Johnson, president of Customer Growth Partners, said retail prices seem roughly similar to last year. “It’s not quite as crazy yet.” He said there have been “normal levels of seasonal promotions” with the exception of outerwear, where there have been heavier promotions due to warm weather during September and October in the Northeast and upper Midwest. “We have seen it at 50 percent off. Other categories are 25 to 30 percent off.”

Johnson cited an increase in the distribution of high-end outerwear including such labels as Moncler and Canada Goose. “A lot of [retailers] have ordered up on that and there’s some worry whether it will be able to sell through. But we haven’t seen prices break quite yet.”

He added that “there’s still a ton of premium denim on the market. Women’s is having a comeback at the very high end of the pyramid,” such as J Brand. “There’s a lot of newness. They haven’t broken price.”

However, at the mass level, with brands such as Levi’s and Old Navy, “it’s very price competitive.”

The sweater business seems “a little soft” but the category is still considered the number-one gifting item, Johnson said.

Broad discounting at department stores continues, according to Johnson. “They are still very very challenged. Traffic is down. They are having a tough go of it.” Still, “the gifting season has just barely begun,” Johnson said. CGP is forecasting a 4.1 percent gain in total retail sales during holiday, with apparel up 1.5 percent. Deflation masks the fact that unit demand on apparel is up 5 percent.

“There is a desire to clear through a little more merchandise a little earlier,” acknowledged one senior merchant at a major chain. “But people are just being very realistic. We’re looking at individual cases based on rate of sales. There’s no blanket discounting. The biggest learning from last year was inventory control.”

The merchant added that regardless of whether outerwear is marked down 40, 50 or 60 percent, consumers won’t buy it if it’s warm outside.

According to the RetailMeNot Promotions Index, for the Nov. 1 to 4 period, which draws data from about 80,000 retailers, percent-offs on accessories are less aggressive — 28.85 percent in 2015 versus 20.68 percent in 2016.

For apparel overall, there were no notable changes on deals from a year-over-year perspective, though “we are seeing higher discounts (both dollar off and percentage off) in the designer-clothing category,” said a spokeswoman for RetailMeNot, a digital destination for discounts at retailers, restaurants and brands.

Teen clothing percent-offs are slightly higher and dollars-off offers are much higher, with an increase of more than $11 off on average, according to RetailMeNot.

Market Track said the steeper discounts that began as early as Halloween indicate that “Christmas creep” is real. It’s study included prices on Amazon, eBay, Google Shopping, Best Buy, Jet, Target and Wal-Mart.

This year saw the same flurry of friends-and-family events, as well as the new flash sales for specific categories among several retailers, such as Talbots and Lands’ End, according to spot checks online.

Traci Gregorski, Market Track’s senior vice president of marketing, said, “Positioning friends-and-family and flash sales as opposed to the more overt Black Friday price specials is a way of tickling the shopper’s mind bone. They have come to expect sales earlier in the season. Retailers are also more direct about when they will put out Black Friday deals and circulars so people can plan their purchases.”

Gregorski said the “creep” has been happening for several years now, aided in part by a “lot of activity in digital driving some early conversations.” She said that what’s new is the tag ‘Black Friday pricing’ on some of the early ads. “This is really about taking demand out of the market before other retailers can entice consumers. Everyone is so connected, and already on their [smartphones], that there’s more noise now for retailers to cut through. It’s become challenging for retailers to figure out how to stand out. The new flash-sale promotions help drive a sense of urgency,” Gregorski said.

But Gregorski noted that the holiday season for retailers has become more challenging as it stretches over a longer period. “Part of the idea is to buy for me now and everybody else later on,” but over time, with promotions the norm and discount codes available online almost constantly, the retailers are running the risk of desensitization, she said.

Joel Alden, partner in the retail practice at consulting firm A.T. Kearney, said, “We are definitely seeing the ‘creep’ trend. It’s been happening for the last six to seven years, and it continues to creep earlier. I am definitely seeing more sales starting earlier that are associated with the holidays.”

Alden said there used to be big sales events such as back-to-school in August and September, with a traditional break until holiday, but the “break in sales activity is now limited, and with some sales being pulled back to October, there’s now less of a bifurcation.” But while the sales activity is earlier, not all are branded as holiday selling, and maybe both retailer and consumer expectations are partly to blame.

In an A.T. Kearney report that’s due to be published shortly, Alden said the recent consumer survey notes that 22 percent of consumers said they plan to buy early in the season before the Thanksgiving weekend. One in four said they can get the same deals beforehand, so there’s no reason to wait until Black Friday.

Alden said the downturn of the financial crisis had retailers promoting more and more to spur sales in order to capture market share, and that has “trained shoppers to shop differently. About half of all shoppers expect to get a deal or promotion.”

According to Alden, less than 10 percent said they actually plan to shop at the last minute, defined in the survey as between Dec. 16 and Christmas Day. But regardless of whether consumers buy earlier in the season at discount or wait until later in the season, at the end of the day it may not matter at all. “The overall [sales] growth of the season hasn’t changed dramatically, it’s been around up 3.5 percent whether it’s spread out over more days or within a few days,” Alden said.

Marshal Cohen, The NPD Group’s chief industry analyst, said he thought the friends-and-family events are similar to those held a year ago, and that election coverage distracted shoppers. He said early holiday business is comprised of much self-purchasing, about 25 percent of it. But it’s not like retailers are increasing market share, Cohen said, “The retailers would rather spread out the sales season as they can’t handle the crowds. It’s not like they are getting more business. They are getting the business spread over a wider period of time.”

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