Holiday shopping outlook is positive despite damper from COVID-19
If the typical holiday shopping season was not already stressful enough, navigating the season during the COVID-19 pandemic is sure to heighten anxiety levels for retailers and consumers alike in 2020. It has already been a devastating year, both from a humanitarian perspective and for the global economy. But US consumers have found a way to spend money amid the chaos and retail has been a key beneficiary of a widespread shift in spending from services to goods.
Total retail sales (excluding food services) through October were
7.7% above the February pre-pandemic level, in stark contrast to
the 5.8% deficit for nominal personal consumption expenditures on
services over the same period. Even within retail categories, the
chasm between "winners" and "losers" is striking. On one end of the
spectrum, sales at nonstore retailers were up 28% from February in
October; at the other extreme, sales at clothing & accessory
stores were down 13%. These sharp contrasts are borne out of
consumer apprehension to engage in socially dense spending
activities as well as the containment measures meant to curtail
such activities. For retailers, this holiday season is either going
to be one to remember or one to forget, depending on how the
pandemic has impacted sales in that industry.
Holiday sales promotions have been
rolling out earlier and earlier each year, diminishing the
importance of the traditional Black Friday/Cyber Monday sales
events and pulling sales forward as early as September. This year,
because of the pandemic, Amazon moved its Prime Day sales event
from July to mid-October and it served as an unofficial kick-off to
the holiday shopping season. We forecast that online holiday sales
will grow 28.1% over last year, compared to the 16.1% rate in 2019
which was the strongest growth since 2004. The expected growth this
year would bump the online share of total holiday retail sales
roughly four percentage points from 21% to 25%—a rate of
increase three times the average since 2015. Online sales were
already destined for continued growth but the pandemic has
accelerated the market penetration rate about three years ahead of
schedule.
Consumer psyche remains a key question mark this holiday season as the pandemic has impacted everyone differently. The spiking number of cases ahead of the holidays and associated containment measures will deter some in-person shopping, as will uncertainty about the slowing economic recovery and questions about whether additional fiscal stimulus is likely. On the plus side, recent news about successful vaccine trials provides a light at the end of tunnel that could ignite a sense of optimism. Moreover, home prices and equity markets are shooting higher and providing a positive wealth effect for asset owners. This should provide enough optimism to make this a successful holiday season for retail sales.