What the holidays mean for retail in 2021

The pandemic and its devastation of lives and livelihoods presented retail with one of its roughest years in more than a decade. Toward the end of 2020, retailers of all sizes had made important changes to they way they do business, which helped them eke out what amounts to a not-bad holiday season.

Even mom-and-pop stores began offering additional fulfillment services like curbside pickup, BOPIS and home delivery, while big boxes like Target and Walmart, which were fairly well down that path already, were well prepared to help customers shop despite the pandemic. Those retailers were also helped earlier in the year by their designation as “essential” retailers, which allowed them to stay open while department stores and most specialty retailers were forced to close.

Some sales that might normally be counted as seasonal were pushed into the third quarter, as many retailers, leery of expected shipping delays due to higher online sales, coaxed customers to start shopping in October. In all, retailers in the cohort tracked monthly by Retail Dive notched surprisingly robust sales in November (up 10.3% year over year) and December (up 6.7%), despite the fact that the pandemic was re-surging and funds from a federal relief package earlier in the year were running out.

“After a year of disruption and chaos, retail ended 2020 on a surprisingly high note,” GlobalData Managing Director Neil Saunders said in emailed comments. “From our data it is clear that savings made on things like travel and vacations were funneled into retail as consumers were determined to enjoy themselves and loosened the purse strings over the holiday season.” 

Holiday spending

Throughout the year, consumer spending reflected the situation forced on them by the pandemic, and that affected holiday results.

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Because so many people stayed home for both work and play, sales of items like furniture, home goods and electronics that made life more pleasant surged throughout the year. By the holidays, that meant that electronics, usually a seasonal mainstay, weren’t on the gift list — sending sales down 10.2% in November and 15.7% in December.

By contrast, sales of apparel, except for comfy clothes like sweats and athleisure, were hit hard throughout 2020, including at the holidays, and aren’t likely to recover much this year, some analysts say. In March, apparel sales fell 52.5%, in April they plunged 89% and in May they were down 63.7%. In subsequent months that moderated, though the declines would be considered significant in any other year: June down 25%, July down 19.9%, August down 23.7%, September down 13.1%, October down 12.1%. While the holidays usually give apparel a bump, sales were down 19.9% in November and 13.9% in December.

Still, the tough lessons in inventory management drilled into retailers by the pandemic held an upside, as many were able to sell less, but make more money. That could continue this year and beyond, as some clothing trends continue even after things return to normal.

“[W]e saw holidays generally light on sales and heavy on margin; almost all holiday updates showed in-line to disappointing revenues with more upside profit surprises,” BMO Capital Markets Managing Director Simeon Siegel said in emailed comments Wednesday. “Looking ahead, we believe those willing to maintain tight inventory into next year remain well situated to drive strong full price sell through.”

Not that it’s easy. Urban Outfitters had a rough holiday in part because inventories were too lean, while port and fulfillment center delays limited replenishment, Siegel also said.

Department stores

Holiday celebration in the U.S. was once orchestrated by department stores, which provided a festive atmosphere that wasn’t limited to their own four walls. Despite what has been a steady decline, many customers still headed to department stores for the holiday season.

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That wasn’t true in 2020. Department store sales plummeted 19.1% in November and 22% in December.

“No one retailer has remained immune from the disruption of the past year, but the situation is especially grave for department stores,” Stephanie Millner, executive vice president of customer experience management at omnichannel platform Teleperformance, said by email. “Once the one-stop shop for Americans, department stores have been suffering a long decline exacerbated by the digital shift. … Customers who have gotten used to buying online will have a hybrid approach to shopping as restrictions gradually ease, and we won’t see ‘just an online’ or ‘just an in-store’ shopper.”

What it means for 2021

Despite the promises of a vaccine and further distribution of it by the Biden administration, the pandemic will continue to shape consumer behavior, according to Telsey Advisory Group analysts. In a Wednesday note they cited ICSC research that found the pandemic was the main reason that 58% of consumers shopped online this holiday, half of consumers shopped at a retailer new to them and about 42% spent more at small businesses. 

COVID-19 relief checks, cut at the last minute around the New Year, are smaller than those sent out last spring, but are already boosting retail sales, according to Facteus, which monitors transaction data. Spending at the companies the firm tracks grew 37% year over year during the week ended Jan. 10, up from the 19% growth in the prior week. Further relief has been proposed by Biden, who takes office Wednesday.

While some analysts believe that plus pent-up demand could fuel retail sales this year, as people come out of their homes and the economy improves, Wells Fargo economists expect much of that to go to the services and entertainment that consumers miss dearly.

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“As we start 2021, the virus is still raging and the holiday bills are due,” the Wells Fargo team led by Senior Economist Tim Quinlan said in a Friday report. “We expect a retrenchment in first quarter consumer spending before a transition to services spending later this year results in another surge in broader measures of consumption. Goods outlays are expected to have a much slower year in 2021 than what we saw during 2020.


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