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Struggling brick-and-mortar retailers could get some breathing room this holiday season — but will shopper confidence be enough to stave off bankruptcies in the beleaguered retail sector?
So far this season, strategic discounting has encouraged shoppers to buy everything from sweaters to speakers, and analysts are optimistic that stores will be able to avoid the kind of sweeping price cuts that have eroded profits in prior years.
“I think retailers all walked away from the weekend saying they can breathe a sigh of relief,” said Marshal Cohen, chief industry analyst at The NPD Group. “The good news is, when you have a good Black Friday, retailers aren’t pressed to have to get into promotion mode too soon.”
The years following the Great Recession conditioned consumers to expect discounts, and retailers initially sacrificed their profit margins just to move merchandise. In the ensuing years, they have fine-tuned their inventory management and pricing strategies, and have learned how to contend with the greater pricing transparency that e-commerce players like Amazon have introduced.
“Price sensitivity has been driven by the visibility across channels. When people have access to price-check everything, you’ve kind of eliminated the higher starting price,” said Frank Layo, managing director at Kurt Salmon, part of Accenture Strategy.
“Americans love at least the perception of a bargain, and in some cases, they are getting a bargain,” said Bankrate.com senior economic analyst, Mark Hamrick.
“Black Friday weekend promotions were pretty similar to last year. We didn’t really see big changes. Cyber Monday we did see a subtle increase in the year over year discounts, a little bit more aggressive, but I think a lot of that was planned,” said Joe Feldman, senior managing director at the Telsey Advisory Group. “If promotions are planned, you’re OK.”
“The general trend feels like there are fewer people having to pull the discount lever to generate traffic,” Layo said. “It seems like people are comfortable with the organic traffic that has shown up this year.”
Analysts do caution there is the chance that this “Christmas creep” is just pulling spending earlier in the season — and they point out that there are still at least two weeks to go.
“A strong start doesn’t necessarily mean a strong finish,” Feldman said.
With a good Black Friday weekend under their belt, Cohen added that retailers’ risk now is complacency. “While it’s a good indication of the potential for things to come, it doesn’t necessarily guarantee great results,” he said. “We still have a lot of shopping to go.”
If stores can hold the line on promotions, the other bullet they will need to dodge is unexpected shipping costs, since free shipping, particularly free two-day shipping, has become an expectation on the part of shoppers. In previous years, retailers who miscalculated demand were forced to pay higher shipping costs that ate into profits. This year, some analysts predict that retailers will begin shrinking their window for offering this perk to keep costs down.
“Look for free shipping to continue through the middle of December,” Cohen said.
It's a good sign when we're buying for ourselves
Looking ahead, some experts did express reservations that a blowout holiday season could create problems in early 2018.
“Early in the new year there might be a spending hangover where sales are essentially being pulled forward,” Hamrick said. “That could have implications for retailers of all kinds, not just brick-and-mortar.”
But for now, most analysts say this holiday season looks to be a bright spot for the retail sector — especially since Black Friday sales indicate that shoppers were buying for themselves.
“What’s really helped them get off to an early start is a lot of self-purchasing went on,” Cohen said. “That leaves room for retailers to have a good holiday because we haven’t really gotten into gifting mode yet,” he said.
“Historically, the mood and the atmosphere where the economy is at right now, it feels like this season should be a decent one,” Feldman said. “I think there is a different level of optimism this year. In people’s attitudes about where the economy is, there’s this feeling that things are a little better.”