Early predictions require fewer deals and delays

A person wears a face mask while carrying shopping bags in Columbus Circle on November 28, 2020 in New York City.

Noam Galai | Getty Images

Shoppers have shown their willingness to spend on new clothes, electronics, and jewelry in recent months – and retail analysts are betting that the luxury will kickstart the holiday season.

Vacation forecasts from three different companies have predicted a sharp year-over-year increase in spending. Sales in November and December are expected to increase 7% year over year to $ 800 billion, according to Bain. Deloitte expects retail sales to increase 7% to 9% for holidays, up from 5.8% in 2020. A forecast from Mastercard SpendingPulse said retail sales for holidays should increase 7.4% year over year and 11.1% on a biennial basis, fueled by a rebound in in-store purchases and continued consumer demand.

Retailers repeated similar expectations. Home Depot, for example, stated that an early release of Halloween decorations sold out – an indicator that buyers might have a big appetite for Christmas decorations too.

Dick’s Sporting Goods announced on Monday that it would be hiring the largest number of seasonal employees in the company’s history for the 2021 holiday season.

Doug McMillon, CEO of Walmart, said the pandemic could inspire families to look forward to the holidays even more. The big box retailer announced earlier this month that it would employ 20,000 supply chain workers such as cargo handlers and elevator drivers to keep pace with demand during the busy shopping season and beyond.

“Customers, families want to celebrate Christmas,” McMillon said at a Goldman Sachs virtual conference. “They want Thanksgiving, and if this virus situation allows it – or maybe it doesn’t – we will see strong demand for the rest of the year . “

Here’s a first look at what shoppers and retailers might see this holiday season, based on CNBC’s interviews with retail analysts and comments from industry executives:

Complications in the supply chain will lead to delays

Industry-wide supply chain challenges, which include factory closures, chip shortages and port congestion, are expected to persist well into next year over the holidays.

The pressure threatens families who don’t shop early enough to spoil the Christmas season. Many stages in the manufacturing and delivery process take longer than normal. Consumers can expect packages to take longer to get to their door as delivery agents like UPS and FedEx overcome their own bottlenecks.

In the meantime, companies are trying to ensure that enough goods are available to meet the projected increased holiday demand. Most categories of goods, from consumer electronics to toys to sneakers, are affected in some way.

Gap’s chief financial officer Katrina O’Connell said Thursday at the Goldman Sachs Global Retailing Conference that the apparel company expects supply chain issues to persist well into 2022.

“We’ll do our best to get units here as soon as possible,” she said. “The inventory could be lumpy.”

Lululemon’s solution was to charter additional air cargo to avoid congested ports. This is a strategy that a number of retailers use, but it increases transportation costs.

Salesforce estimates that the cost of goods sold for US retailers this holiday season will increase more than $ 223 billion year over year due to skyrocketing freight, manufacturing and labor costs.

Hiring challenges will exacerbate retailers’ problems

Retailers want to get goods from ports to stores to customers’ homes quickly, but that becomes difficult when they are not fully occupied. Aaron Cheris, director of Bain’s American retail practice, said the tight labor market is the number one factor this holiday season.

According to data from the Department of Labor and Indeed, there are about 10 million open positions in the US, about 1 million more than the unemployed in the US. Millions of workers have been left on the sidelines for reasons ranging from childcare challenges to lack of skills.

Across the supply chain, companies are few and far between trying to limit inventory levels and cut delivery times, Cheris said. That means they are in a tough spot when buyers insist on getting goods delivered or have a strict schedule.

An employee outside a Target store in Clifton, NJ

Adam Jeffery | CNBC

“For the last minute shopping I was dying to do before Christmas, I’ll go through the trouble if you tell me the delivery window is eight days and it’s 3 days before Christmas?” He said. “You might say, ‘Forget it. I won’t bother about it.'”

Retailers will also be missing out if they don’t have vendors available to find or suggest items and ensure popular purchases are replenished quickly in the aisles, he said.

Offers? Don’t expect to see so many

If you’re expecting a good deal or a high-demand item this holiday season, you’d better shop early.

Companies have less reason to put items up for sale as supply chains tighten inventory levels. Instead, promotions are likely to be strategically placed on goods that retailers have in excess. And that may not be at the top of your vacation wish list.

“There will always be sales, but they won’t be that deep and plentiful,” Cheris said. “As a retailer or a brand, I don’t have the same motivation when I know I’m going to sell out my inventory.”

Business will start and end earlier, according to Rod Sides, vice chairman of US retail and sales for Deloitte. He anticipates that many consumers’ holiday shopping will start before Thanksgiving this year and end weeks earlier than usual. It could make days like Black Friday less important as shoppers expect to have to pay for certain coveted toys and game consoles regardless of the extravagance of the deals.

“The consumer has recognized some of the challenges in the supply chain,” said Sides. “There will be certain categories that retailers will have plenty of inventory in. And there will be other categories that they don’t have … where people want to buy. And those are going to be the big challenges.”

Many retailers, including Macy’s and Dick’s Sporting Goods, have reported higher profits from spending fewer promotions.

Speaking at the Goldman conference, Adrian Mitchell, Macy’s chief financial officer, said the haircuts this year have been below historical levels, in part due to rising costs from inflation.

Macy’s said it was less concerned about having enough jewelry, beauty and housewares supplies during the holidays. However, she is more cautious about clothing and shoes due to procurement restrictions.

Buyers return to the stores

Buyers are expected to get off the sofa and return to the mall, analysts said. That will boost spending as people are more likely to make impulse purchases when shopping in person. It’s a major reversal from last year when the pandemic sparked a shift towards e-commerce.

Mastercard SpendingPulse’s annual vacation forecast, based on aggregate sales activity on the Mastercard payments network, sees sales in stores increasing 6.6% year over year, excluding cars and gasoline.

Mastercard Senior Advisor and former Saks CEO Steve Sadove said luxury goods and jewelry are the two top categories that send people back to stores.

“There is a lot of catching up to do, the savings rate is high, the stock market is doing extremely well and the consumer wants to get out and shop,” said Sadove in an interview with CNBC’s Courtney Reagan on Monday. “The consumer wants to go back to the mall.”

According to Mastercard SpendingPulse, apparel sales – both in-store and online – are expected to increase 46% from November 1st to December 24th compared to last year’s Christmas season. Jewelry sales are expected to increase by 59%. According to MasterCard, luxury sales, excluding jewelry, will rise a whopping 93%.

Hurricane Ida could be a spoiler

Hurricane Ida flooded homes and damaged cars. AccuWeather estimates the storm caused more than $ 95 billion in damage, making it the seventh costliest hurricane in the United States since 2000.

For some families, this extreme damage translates into thousands of dollars in unplanned expenses ranging from repairing a roof to replacing washers and dryers. In the short term, the purchases could boost sales at home improvement retailers like Home Depot and Lowe’s, or at appliance sellers like Best Buy. But Bains Cheris warns it could break the budget for Christmas gifts.

“This is another place my dollars will go where they normally wouldn’t have gone,” he said.

Buyers could also invest their money in other channels, such as travel and booking hotel rooms at a higher price, he said. Travel websites and hotels report that the booking pace for December was robust, in many cases exceeding 2019 levels. People plan well in advance what could drive prices higher for procrastinators. The increased spending on travel could mean less money for material things.

Buyers will be disappointed: successful retailers will figure out how to handle it

Shoppers are more likely to experience headaches this holiday season such as lost items, weeks of shipping delays, and unattended checkouts.

Cheris said companies need to find a way to resolve a frustrating or disappointing experience so they don’t permanently lose a customer. You can also try to get ahead of these moments to mitigate the effects, e.g.

“Those are the moments of truth that really matter,” he said. “Those are the emotional moments that make a big difference when you find a way to make them better.”

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