We live in contradictory times. Early in the 2016 holiday season, most forecasters were calling for strong year-over-year growth. So why did we hear broad-based and acute retail pain as early in the post-holiday season as January 4? Macy’s laid off 10,000 people; the Limited announced the closing of all 240 of its stores; Wal-Mart eliminated 1,000 managerial positions. And that was just in the first week of the year. Before the end of January, we heard that Wet Seal was also closing all its stores. Usually this kind of news is held back until February.
What happened that prevented retailers from having the season they expected given the strong numbers projected, and how was it that the signs got so mixed up? Not to take a page out of the recent election, but it was like winning the electoral vote while losing the popular vote — or pick an analogy where we’re looking at two distinctly different ways of measuring, and finding that the one we most care about didn’t win us the day. The holiday retail season has gotten more complex than ever before.
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The key question is, if the macro data says that it was a great holiday season, how is it that retailers, widely speaking, were not the beneficiaries, and despite the slight economic lift December enjoyed, retailer growth was negative? I’d hasten to say that it wasn’t the case that in conjunction with the normal macroeconomic outlook, there were some winners and some losers. The losses were broad and overall, and the few winners did not make up for the sweeping losses. The Department of Commerce, which is not vested in boosting the morale of the retail industry, landed on a first estimate of 0.7 percent growth in December. But this year, the dichotomy was bigger and more distinct than ever.
It’s interesting to look back at what happened before the holiday — sometimes there’s insight in hindsight. There were a few things that were different — things that began to emerge early in the fall, well before the season got underway. There were signs that the cadence of holiday shopping was shifting: early on, online was the strongest channel, and retailers who understood this — who chose to rethink the holiday equation toward digital sales — were successful. For example, Target, Amazon, online brands and brands selling direct to the consumer all achieved online growth because they did it differently. The more traditional retailers who did everything much the same way they’d always done it — felt the pain.
Then there was the final week before the holiday. Not all retailers looked closely enough at the calendar to see what an impact that extra weekend would have. As the season progressed, online sales accelerated while stores slowed down. In the final push, however, that last week of holiday shopping, with two weekends and two extra days of shopping, spelled a bonus for stores — physical stores. And again, the retailers who understood this ahead of time — this fundamental change in the drumbeat of the season — were the rare winners.
Reading the Signs
Our ability to look at the data from actual point-of-sales transactions allows us a view into what consumers actually purchased during the holiday period — as opposed to what survey data said they planned to spend. And by using our receipt-based Checkout Tracking data, it was possible to look at how and when consumers were purchasing — online, in store, hour by hour. This kind of view would allow manufacturers and retailers to see recent developments on what’s hot and what’s not, as well as to understand the new cadence of the holiday.
Take, for example, the data from the starting gate of the holiday shopping season: dollar sales in the first week of November 2016 were 7 percent lower than they were in the first week of November 2015, driven by declines in both unit sales and the average price paid.
By Black Friday weekend, it was clear that the pace of holiday shopping was shifting later, even on an hourly basis, in 2016. Checkout Tracking showed a drop in share of spend on Thanksgiving evening compared with the prior two years. But on the following day — Black Friday — the share of shopping in the noon hour hit an all-time high, versus shoppers taking stores by storm at the break of dawn.
Then, looking at data from the eighth week of the season — the one ending Dec. 24, with those last two weekend days taken into account — we see that dollar sales during this week were 16 percent higher than the same week in 2015. At this point it was also possible to see that, while the eighth week outperformed the historically peak week of Thanksgiving, cumulatively, dollar sales in the first eight weeks of the 2016 holiday shopping season were still 1 percent behind the first eight weeks of the 2015 season.
Would that one strong week be enough to resuscitate the entire season? Almost, but not quite. The final week of holiday shopping, ending Dec. 31, showed a return to the slower trend seen through most of the holiday season. Sales during this week were 5 percent lower than in the same week in 2015. Cumulatively, according to our point of sale data, dollar sales for the nine weeks of the 2016 holiday shopping season were 1 percent behind the nine weeks of the 2015 season.
The Ostrich Club
At this point it’s pertinent to ask, to what degree did retailers and prognosticators have their heads in the sand? While all signs telegraphed one thing, data recording actual purchase activity told us a different story. The result was a head fake, with most industry observers hearing what they wanted to hear.
Taking a closer look at the fabric of spending helps to find the dividing line — to see the changing factors that make a huge difference in the shifting retail equation. We know, for example, that much of the usual retail spend this holiday season was reallocated from things you could put in a shiny box with a ribbon to experiential gifts that may have arrived in an e-mail — gift cards for restaurants and spas, for example — categories that do not fall into the normal holiday mix, and categories that were diverted from normal retail spend. We also know that non-traditional retailers who were taking a fresh approach to their offerings at the holiday season did far better than “same old, same old” seasoned retailers, particularly department stores. And we know that there is a growing vector toward online shopping.
In order to ascertain the true story of a retail season — whether for retailer strategy or to understand economic shifts — predictive and actual results need to be used. That way lessons can be learned. Looking at data — not only at shoppers’ intentions, but also at what actually happened — can help retailers spot a trend early enough to watch it develop, see where the momentum is going, and take a course of action that allows them to ride the wave rather than be consumed by it.
Marshal Cohen is chief industry analyst of The NPD Group Inc., and is a nationally known expert on consumer behavior and the retail industry.