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Retail Holiday Shopping

Holiday Sales Expected to Be Healthy

Nov. 21, 2022
Retailers are taking novel approaches to draw in consumers.

American consumers will spend more on Christmas gifts this holiday season than they have in three years, since before the Coronavirus pandemic, according to research conducted in October by the Gallup organization.

Adults in the United States who were surveyed by Gallup estimated that they will spend an average $932 on gifts this season. This is sharply higher than Americans’ average $837 holiday spending prediction last October and Gallup’s $805 forecast in October 2020. This estimate nearly matches the $942 measured in October 2019—the high point in Gallup's trend measured since 2006.

“For now, Americans’ 2022 spending intentions suggest retailers will enjoy a better-than-average holiday season, although not rising to the level of the extraordinary one they had last year,” states Lydia Saad, director of U.S. social research at Gallup.

One reason the holiday spending estimate for American consumers is especially high this year could be that consumers are expecting to pay more for goods like clothing, electronics and toys after a year of high inflation, she believes. “Still, the fact that spending intentions are significantly higher now than a year ago at this time is a promising sign for retailers as the holiday season gets underway.”

The average amount Americans said they anticipate spending encompasses a range of shopping budgets. More than a third of U.S. adults—37%—say they plan to spend $1,000 or more. In addition, 30% are planning to spend between $250 and $999, while 17% say they plan to spend less than $250.

This year’s rise in the higher overall spending estimate is mainly the result of larger group of Americans saying they will spend $1,000 or more, which is up from 33% last year, as well as fewer saying they will not spend anything, according to Gallup’s poll results.

Consumers’ holiday spending can also be influenced by changes in the economy, gas prices or even major news event, Gallup points out. Despite Americans’ relatively high spending estimate for this holiday season, the poll finds consumers remaining fairly cautious in characterizing how their Christmas spending will compare to last year. Just 17% say they will spend more on gifts than they spent a year ago, while 26% say they will spend less and 55% say they will spend the same amount.

Gallup’s 2022 figures are similar to the results it reported in October 2020 and 2021, but they are more conservative than the sentiments expressed from 2017 to 2019, when about as many adults said they would spend more as spend less. The height of public caution on this measure in Gallup’s October trends was recorded in 2008 amid the global economic crisis called the Great Recession. That foreshadowed the worst holiday season in modern history, with spending falling nearly 5%.

However, Gallup was careful to warn that its annual October surveys of the amount Americans plan to spend on gifts cannot be used to forecast precisely how much holiday retail sales will change year to year, but it asserted that they are usually indicative of the direction of change.

In comparison, the National Retail Federation (NRF) has forecast that holiday retail sales during November and December will grow between 6% and 8% over 2021 to between $942.6 billion and $960.4 billion. Last year’s holiday sales grew 13.5% over 2020 and totaled $889.3 billion, shattering previous records, according to NRF’s research.

Retailers Learn to Adjust

Retailers have applied lessons learned from the past nearly three years of pandemic-influenced shopping patterns to position their stores and e-commerce operations to best take advantage of this year’s holiday season, according to CBRE’s annual Holiday Retail Trends Guide.

These adaptive strategies are expected to help boost holiday spending to a 6.9% year-over-year increase in fourth-quarter retail sales to $1.48 trillion, based on the analysis of various industry sales projections by CBRE, the global commercial real estate giant.

“This year’s holiday season is already illustrating the adaptive nature of retail and retail real estate,” says Bill Wright, senior managing director for retail advisory services in the Americas at CBRE. “Dramatic changes in shopping patterns and practices due to the pandemic spurred retailers to think differently and early about their stores, their operations and their supply chains, with the goal of delivering a better shopping experience and higher sales.”

To get ahead of the challenges that holiday shopping has faced in recent years—including labor shortages, scarcity of certain merchandise due to supply chain disruptions and outpaced growth in e-commerce versus in-store sales—retailers across the board are largely focusing on three key trends in 2022, in CBRE’s view.

More inventory, less out-of-stock. Supply chain disruptions roiled the retail industry in 2020 and 2021 as shuttered factories and bottlenecked ports created shortages of certain merchandise in stores and online.

An ill-timed slowdown in July retail sales has left some retailers with excess inventory that may prompt discount offers to consumers. Nordstrom, for example, estimates $200 million worth of markdowns over the second half of 2022. However, retailers could benefit from excess inventory due to an extended holiday shopping season. Data analytics firm Placer.ai expects a repeat of last year’s early holiday shopping season start when weekly sales in October grew by 3.2% compared with 2.5% growth in November.

Retailers and e-commerce companies have sought to counter that problem this year by stocking more inventory closer to the customer, whether it is in stores or in warehouses that are closest to large population centers. This entailed shifting from a “just-in-time” model of stocking only what is forecast to be needed to a “just-in-case” model of amassing deeper inventories farther ahead of the season, CBRE observes.

“In many cases, this has resulted in jam-packed warehouses and larger-than-usual stockpiles of loaded shipping containers behind stores or in storage yards,” the company says. “This is one of the factors that has pushed the vacancy rate of leased warehouse space in the U.S. to a scant 2.8% this year from 3.6% last year.”

Solving the labor puzzle. The pandemic caused disruption and displacement in the job market that the retail industry, among others, is still grappling with. In a recent Deloitte survey of retail executives, 68% cite a shortage of employees as one of their biggest challenges. Job openings and resignations remain above long-term averages.

Less availability of temporary workers may force some retailers to reduce store hours this holiday season, a circumstance that is already evident in the restaurant industry. Retailers are taking multiple approaches to address the labor challenge. Some have reduced store hours, and several national retailers have announced they wouldn’t open on Thanksgiving this year.

Some retailers also are leaning more on their e-commerce operations, as staffing up fulfillment role in warehouses has often proven easier than trying to find more associates for their brick-and-mortar retail stores.

Redesigned stores. Another tweak involves the way stores are being laid out in a way to support store pickup of online purchases. As a result, many retailers redesigned their stores to dedicate space for employees to fill online orders quickly and separate space for customers to pick up those orders, making stores more efficient and allowing for better connection between retail associates and customers as well as generating additional sales from the store visitors.

Store Layouts Aid E-commerce

E-commerce companies have been more successful in attracting and keeping workers, CBRE notes. Non-store retail employment (traditionally e-commerce) has grown by 12.4% over the past three years, compared with just 1.7% for total retail trade employment, according to the St. Louis Federal Reserve Bank.

With an e-commerce penetration rate of 19%, there could be up to $85 billion worth of goods returned during or immediately after the 2022 holiday season. Retailers and logistics operators must decide what to do with returns of apparel, toys, electronics and many other items to recapture product value and minimize waste. Physical returns allow the store to assess whether the item is in good enough condition to put back on the shelf at a full or marked-down price.

Although many customers expect free returns, this is costly for retailers. Reverse logistics company Optoro estimates that, on average, it costs $33 (or 66% of the price of a $50 item) to process a return. That cost likely will be higher this year given increased transportation and labor costs.

In some cases, it might make sense for the retailer to allow the customer to keep the item since the processing cost exceeds the product value, CBRE says. In addition to transportation and labor costs, other factors contributing to the high cost of returns include processing, discounting and liquidation losses. A customer-centric return policy is a competitive differentiator and has become increasingly important to attract and retain customers.

Many retailers—especially those with a thin supply-chain network—use third-party logistics providers for return management. This has contributed to 3PLs accounting for 36% of large industrial leases (100,000 sq. ft. and above) in 2022 year-to-date, up from 30% last year.

CBRE believes that 3PL activity will continue to grow as retailers outsource reverse logistics to reduce costs and avoid the challenge of finding warehouse space in record-tight markets with limited labor.

Come for the Experience, Stay for the Shopping

Retailers and shopping center owners have experimented in recent years with improved placemaking, which often entails adding new services and experiences, CBRE explains.

Many mall owners have converted formerly vacant storefronts into Instagram-worthy moments and exhibits. Examples include the Netflix Stranger Things Experience in Los Angeles, Atlanta and London, and Princess Diana exhibits located in shopping centers in Las Vegas and near Washington, D.C.

Finally, Santa Claus is here to help. The Santa-for-hire business shot up 121% from 2019 to 2021, and has been even more active building up to the 2022 holiday season, says Santa-booking company Hire Santa. Several big retailers, such as massive outdoor retailers with standalone stores, have added Santa visits at their locations.

The traditional Santa visit has evolved to include online booking of appointments, and online ordering of prints of photos with the big guy, CBRE adds. More people are also seeking Santa visits and photos with their pets. The Census Bureau reports that miscellaneous retail sales, including pet supplies, is up 20% over 2021, and market research firm Forrester predicts online pet supply sales will grow 11.2% annually for the next five years.

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