After a holiday season with little festivity and no shortage of uncertainty, America’s retailers are feeling all right.
While the pandemic has decimated shopping inside “nonessential” stores and has put millions out of work, digital sales have skyrocketed, and foot traffic at mass chains, big-box category killers, warehouse clubs, groceries and pharmacies all deemed “essential” was strong during the holidays. It was a hardlines Christmas, for sure, with home, electronics and appliances outperforming soft goods, although activewear, sneakers and cozy apparel were exceptions.
Amazon said this holiday was “record breaking,” as was last year, with “billions” of holiday purchases made and delivered. Amazon said it delivered this year, through the work of its more than 400,000 employees, 1.5 billion products in toys, beauty and personal care, home and electronics. Last year, it delivered about 500 million products in the same categories.
A few department and fashion specialty stores managed to meet or beat their expectations, albeit those expectations were sharply lowered last spring with the advent of the coronavirus.
In many cases, retailers were surprised by the outcome.
“It has been turning out better than what we anticipated in the early part of this year,” said Melody Wright, chief operating officer of Von Maur Inc., the Davenport, Iowa-based, 39-unit department store chain. She said Von Maur was tracking 10 to 15 percent ahead of its reset business plan. “That doesn’t get us all the way back to the original plan, but we are pleased where it’s headed.”
“We are all pleasantly surprised and pleased we have been able to weather this environment,” said Bill Brand, chief executive officer of Rue21, the Warrendale, Pa.-based apparel chain that targets men and women ages 15 to 25. “Now we want a sense of normalcy and this year to be over, but we have a better sense of hope right now. At Rue21, we are fortunate to have this momentum pushing us forward.”
“Considering we reset our expectations last spring with the outbreak, and that people are being told everyday not to go out, the results for holiday were better than our reset expectations,” said one ceo of an upscale national retailer, who requested anonymity. “Our overall feeling is that our inventory is in a good position and markdowns have been lower than a year ago, and not only for the end of the season.”
With cutbacks in ordering back in the spring, retailers have been running out of activewear, loungewear, sleepwear and cosmetics, the ceo said. Also, “a lot of home furnishings and home improvement product had long lead times” before it would be delivered to homes, the ceo added.
His best-selling areas were home, sweaters, sneakers, casual, active, fragrances and designer leather goods. Anything dress up was not in demand. “Fragrances were the best part of the beauty business,” the ceo said. “People are looking for something that makes them happy. A fragrance can remind you of a vacation, or somebody you love. It’s an easy way to treat yourself. A fragrance defines a personality.”
“I wasn’t expecting December to be good. It’s come around. I was surprised,” said Deirdre Quinn, cofounder and ceo of Lafayette 148, which markets women’s fashion at opening luxury price points. “I think the season is going to end up OK. Each time I see the flash, it’s up, and inventory levels are down. You just watch it like a hawk. I’m really cautious.”
Depending on which Industry expert one goes by, holiday 2020 sales will wind up anywhere from 2 percent to 6 or 7 percent ahead, spurred by the dramatic shift to online shopping, and the still employed having more to spend on material goods since little or nothing has been spent on travel, restaurants, theater and other experiences cut short by the pandemic.
Among the season’s other key trends: robust, socially distanced foot traffic at Target, Walmart, Costco, Best Buy, Home Depot and Lowe’s as well as Lululemon, Uggs and footwear stores; some apparel pickup at department and specialty stores in the second half of December after shipping cutoff dates passed and the weather got colder; lower inventories, with stockouts seen in home decor and active, and an even pattern of shopping through an elongated season with less of the sales peaks and valleys of past years, and less frenzied promoting. The season was extended because Amazon delayed its Prime Day promotion to Oct. 11, causing competitors to start their holiday campaigns around the same time, a month to six weeks earlier than normal.
The season also saw higher conversion rates, and rapid adoption of safety measures and conveniences. Retailers provided sanitizers, maintained socially distanced lines outside their doors to limit crowd size, beefed up BOPIS and curbside pickup services, utilized third-parties for speedy deliveries, and had sales associates at upscale stores actively reaching out to customers online.
Mastercard SpendingPulse reported that 2020 holiday retail sales rose 3 percent, excluding automotive and gasoline, which is close to the National Retail Federation’s forecast for holiday sales to grow between 3.6 and 5.2 percent, to a range of $755.3 billion to $766.7 billion. But nonstore sales, dominated by the web, are expected to increase between 20 percent and 30 percent, for a total haul of $202.5 billion to $218.4 billion.
There’s a range in the predictions, with Customer Growth Partners forecasting up to a 6.2 percent gain. Deloitte was among the most conservative in its assessment.
Asked if the season was good, bad or OK, Rod Sides, Deloitte’s vice chairman and U.S. leader of retail and distribution, replied, “I put in the OK category. Given the strength of consumer, it’s going to be fine, probably a 1 to 2 percent gain, depending on who you are.” The ongoing economic uncertainty, and the fact that a second round of government relief checks didn’t arrive in time for holiday spending, had a dampening affect on spending among lower income families, he said.
Considering last year, which came in at roughly a 4 percent gain, a 5 percent increase would be “unbelievable” for this year, Sides said.
Deloitte indicated that “significant increases in digital spending were enough to just offset the losses in brick-and-mortar spending during the holiday shopping season,” though Sides noted that digital cuts into profits. “Absolutely, it’s a much more expensive model, especially since it involves handling inventory several more times. The labor component gets you,” as do the costs from third-party shipping companies.
“Generally speaking, you’re going to pay anywhere from $3 to $7 per delivery for an apparel package. That can add up in a hurry,” Wright said.
“If you are shipping a $25 item, that is going to have a huge impact. It’s a different story if you are Saks, shipping a $400 item,” said Steve Sadove, Mastercard senior adviser and former chairman and ceo of Saks Fifth Avenue. “But in general it’s a very big issue. Considering the massive amount of shipping that occurred, retailers did a good job. You did hear complaints, but overall retailers handled it well and handled it safely.”
Mastercard’s 3 percent estimate on the season “shows that the consumer is very resilient and healthy,” Sadove said. “Three percent is very solid growth. Internet sales grew almost 50 percent [49 percent] compared to 2019 and now account for nearly 20 percent [19.7 percent] of retail commerce.
“Overall the consumer is holding up pretty well,” Sadove added. “Inventories were very much in line, and it was a good season from a margin perspective. Retailers ordered product in March and April in the depths of the pandemic. They didn’t order much, and came into the season clean. I see a lot of empty shelves right now. Margins are going to hold up.”
For the last several days leading up to the holiday, “More people were out and about,” Sadove said. “The retailers I spoke to said traffic was good, better than expected. And people were very good about masking.”
“It was a strong finish to a strong season,” said Craig Johnson, president of Customer Growth Partners. “After the first 10 days of Christmas and a lot of talk of things slowing down, we are very encouraged. Things picked up. Christmas Eve day was strong, and yesterday, Boxing Day, was the best Dec. 26 we have ever seen. It helped that was a Saturday. People were buying, not just exchanging or returning.”
Johnson underscored that despite the millions being unemployed, there’s cash to spend. Last year, U.S. consumers had $1.2 trillion in savings; this year, they had $2.2. trillion, he said.
He said department and specialty stores will still be negative in the high-single digits for the season, but not as deeply negative as previously thought due a “nice little rebound” in apparel, mainly over the last two Saturdays of December.
Retailers believe business will improve in the second half of 2021.
“We think spring will be a little bit bumpy,” said Ken Ohashi, president of Brooks Brothers. He expects a lot of businesses to reopen their offices in the middle of next year as coronavirus vaccination becomes more widespread, giving Brooks Brothers a boost from guys wanting to look spiffy. “Our guy has not replenished his work wardrobe in awhile,” Ohashi said. Brooks Brothers planned conservatively going into the holiday season and started promotions before Thanksgiving, which helped bring sales to the level hoped for.
The number-one category this year was sweaters, displacing dress shirts. High-end pieces such as V-neck cashmere sweaters were bestsellers for eight straight weeks, he said. Half-zips were also popular as “great layering pieces for our guy.” And while dress shirts had a rough time, sports shirts in flannel, checks, plaids and other traditional patterns did well.
Looking ahead, Ohashi said, “There’s a level of fatigue out there from wearing sweatpants. So we’re expecting a resurgence of dressing up,” as parties and events are rescheduled next fall and holiday.
Bob Mitchell, co-ceo of Mitchells Stores, said that while business overall remains challenging compared to prior years, holiday sales were “definitely better than the general trend.”
He cited “zero demand” for dressy men’s and women’s wear, though there were some bright spots, notably luxury sportswear from Brunello Cucinelli and Loro Piana; casualwear from Faherty, Rhone and Peter Millar men’s, and Vince and Nili Lotan. The biggest winner: women’s jewelry. Sneakers were also “wildly ahead,” Mitchell said. “And we never sold so many sweatsuits, from $100 to $1,000.”
Mitchell said the stores honed their digitally assisted sales. “That was our biggest win, using technology to connect with our customers.”
Ken Giddon, president of Rothmans, said his two locations in Westchester, N.Y., “were fortunately the benefactors of a true effort of consumers to shop local. Nobody went away this year, so we were up in December.” But the flagship on Union Square in Manhattan “was down dramatically, which is the nature of now.”
Rothmans’ bestsellers included knitwear from Faherty and Stone Rose, along with Sorel boots. In terms of dress-up, he said sarcastically: “Tailored clothing? What’s tailored clothing?” Suits have floundered during the pandemic and Giddon expects this situation to continue through at least the first quarter. He’s hoping for a rebound by April. “We expect the next three months to be very slow,” he said.
Chris Riccobono, founder of Untuckit, characterized the season as “good — we sold a lot of product, not as much as last year, but a lot.” Although the brand was built on button-down dress shirts and fills a need for work attire, polos, T-shirts, Henleys and sweaters drove business this year. “Flannels and performance shirts were better than wrinkle-free,” an historic frontrunner, he added, reflecting the change in lifestyle to a more-relaxed aesthetic.
“We did a survey of our customers and 65 percent of the men said they wore button-down shirts three to five days a week before the pandemic but only 16 percent post-pandemic,” he said.
Business at Untuckit’s 87 stores picked up a bit in December; online sales continued to thrive. At the brick-and-mortar locations, Untuckit teamed with a fulfillment company, Ohi, to create micro warehouses at its stores for same-day deliveries, “which really helped” in the run-up to Christmas when shipments were delayed for a lot of companies.
Riccobono said he expects another tough first couple of months in 2021 with no opportunities for gifting and the “natural depression” of winter. “We believe that in the second quarter we’ll start to see a fast turnaround. So if we prepare to get through the first quarter, I think it will be an exciting period for Untuckit.”
Overall, Rue21 beat its plans for the season, and outperformed last year, ceo Brand said. “We had the right product and the right store experience. Our top three items were knit sweaters, joggers and screen Ts. We have been right on track in this cozy casual environment.”
He said that last week, with the last-minute shopping, traffic at malls and outlets was down, though strip centers were up. Having many Rue21 stores near Target, Walmart and Ulta units helps with traffic, he added. The business also benefited by a reduction of stockkeeping units. That freed up associates to engage with customers who could see merchandise in stores, including a Looney Tunes screen Ts program. “We very early identified the soft and cozy trend. We didn’t have to chase the product.
“How do we capitalize on this moment?” Brand asked rhetorically. “We continue to create great experiences, build upon our loyalty program, which we started in April, and we are making a big investment in data, to deepen that connection with customers. We also re-platformed our web site to be more agile and flexible. It’s improved site speed, we will be broadening the assortment, and we will create new engagement tools.
For spring product in January, the story will be around lighter weight joggers, fleece joggers become fleece shorts, soft and cozy pulls back a little, and casual stays.”
“Sleepwear and loungewear have been strong, as well as slippers and cozy boots,” said a Macy’s spokeswoman. “Watches have also been good, especially in colors customers don’t already own like black and rose gold. In terms of initiatives, curbside and same-day delivery have been critical parts of our fulfillment strategy this holiday season. Across the country, the customer adoption of curbside and same-day delivery has set new high bars daily. Our stores team and our partners at Door Dash continue to meet that demand.”
Deloitte ranked the top-performing subsectors in retail for holiday as home improvement first, followed by mass, electronics, grocery and warehouse clubs.
“If some normalcy returns to life after the vaccine is rolled out, if you think that will happen, then I would say it’s worth taking some bets on restocking to the right inventory levels,” Sides said. “Inventory depth was a lot less than we have seen in the past, and retailers weren’t replenishing on a timely basis.”
Asked if there was many stockouts, Sides said, “It depended on the category. You can’t find ammo at all if you go into the hunting section. In team sports, there was plenty of stock. A lot of kids sports activities were delayed. Home decor was pretty thin. But you could still find apparel.”
He described the traffic pattern through the season as continuing to be “very light,” and that Super Saturday, (always the last Saturday before Christmas) “in my market looked like a normal Saturday,” not a Super Saturday.
He said Deloitte is optimistic about 2021. “There is a chance for 2021 to be a good year and for things to bounce back.”
According to Evan Gold of Planalytics, the snowstorm a week before Christmas “got people into a Christmas mind-set and was great for all the seasonable businesses, citing ice melts, snow blowers, boots, sweaters, gloves and hats, heaters, blankets, firewood, bird feeders, soup, hot chocolate, coffee and other comfort foods.
“For anyone looking to clear those products, the storm was well timed. That storm was pretty well forecasted up to a week out. People buy based on what’s forecasted in the weather, as much as when the weather actually happens.”
He said retailers benefited by this December being colder than December 2019, with below freezing temperatures widespread, particularly for Boxing Day and the week ensuing, supporting post Christmas clearances and gift card redemptions.
“Mother Nature has been volatile, but the weather very, very rarely repeats itself,” Gold said.
“Right now, it’s very hard to plan,” said the retail ceo who requested anonymity. “We are in a second wave of COVID-19 so the next six months will be very challenging, until the vaccine gets widely distributed. Hopefully, there will be some momentum in second half, as people are eager to get out again.” In terms of planning, “You’ve got to make some bets and everybody is scrambling to get supply chain back up. Nobody is giving guidance for next year, but internally you have to make decisions.”
Wright said she saw “a major acceleration” of traffic beginning on Super Saturday with a lot of consumers taking the week off and wanting to shop physical stores so they could have the gifts before Christmas as cutoff dates for deliveries arriving before Christmas passed. “December has certainly been more on plan than November,” Wright said, citing home decor, drink mixers and glasses and accoutrements for drinks as among the full-price bestsellers.
Von Maur’s online business “far exceeded our plans. We had to work to keep enough inventory to ship.”
“We think spring, particularly the first quarter, will be pretty quiet, there has to be significant traction with the vaccine getting out to the population before you see any meaningful improvement. The first quarter will look a lot like the fourth quarter, then some improvement in the second quarter. In the fall, it will get a little bit closer to normal. We are being very very cautious for 2021,” she said.
Goop, which had four stores open over the holiday season, two in California and one each in Hawaii and Sag Harbor, N.Y., indicated retail did better than expected.
Noora Raj Brown, Goop’s head of marketing and communications, said the Sag Harbor unit stayed open longer than planned because it “did so well in sales” as many people who typically spend only the summer in the Hamptons have been living there full time during the pandemic.
Goop did change its assortment this year, shifting early on even more into wellness and home products and away from women’s apparel and fashion, which has been hit particularly hard during the pandemic, as well as travel, typically a big area for the brand. It paid off. Raj Brown said sales in the home category in the fourth quarter are up 54 percent year-over-year and sales in wellness are up 125 percent.
“We’re seeing consumers gravitate toward at-home fitness and self-care devices like massagers, sauna mats and sexual wellness devices,” she said.
But Goop’s e-commerce remains the top source of revenue. Bestsellers this holiday were cookware, and a Goop candle dubbed “This Smells Like My Vagina,” which has been simultaneously reviled and praised and gotten plenty of free marketing. Other bestsellers were the ProLon Diet, designed to mimic the effects of fasting, and GoopGenes beauty products.
Goop further altered its assortment by bringing some lower-priced items into the mix this season, including its first branded lip balm. At $20, it’s the company’s lowest-ever price point. It sold out in two weeks. “It was a hugely important lesson in that people need accessible luxury right now,” Raj Brown said.
“There are two economies — families in dire straits who are fearful, then there are people with money,” Quinn said of Lafayette 148. “There is excitement about the vaccine, confidence is coming back a little back. I think it’s going to come back faster than we realize; I am going to stay extraordinary cautious. There is a new normal coming out of this. I would rather make less great product than change the product. I’m not buying cheaper fabric or cutting corners. I’m not pushing my designers to make it less expensive. If anything, we’re going in the other direction, I am buying more fabrics that are sustainable. My wholesale is half what it used to, right through spring of 2021. Our e-commerce is flat at the moment. To me that is good. We are in a zone of women’s fashion that’s been hit very hard.” Quinn acknowledged foot traffic in the Lafayette 148 stores is down. “There’s no foot traffic, but when somebody comes in, they buy.”
Asked about planning inventories for next year, she said, “I am absolutely fine to leave it flat to this year, and drive my sell-throughs up. If I end 2021 up 10 percent, I will be a happy person. It will take us to 2023 to get back to where we were, if we ever get there again. It’s not about the top line. It’s about profitability and controlling your inventory. My partners fully support us coming back as a smaller, stronger, smart company. I used to focus on market share. That was the game — how much more square footage could you have, how much more product could you sell. Now it’s about how do I keep my team together and stay focused on my brand. I don’t care how big we are. I care about being a healthy company.”
HOLIDAY 2020 TRENDS
• Sharp online gains; mall traffic light but in-store conversion rates and transaction values high.
• Furniture, home decor, sneakers, gift cards, fragrance, activewear, sleepwear, loungewear are bestsellers.
• Mass, big box, electronics, groceries, pharmacies perform best in brick-and-mortar retail.
• Season elongated when Amazon launches Prime Day on Oct. 11 and competitors respond with holiday deals.
• Curbside pickup and BOPIS widely embraced by retailers and consumers.
• Inventories kept low, stockouts seen in certain categories including home decor and activewear.