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Looking for a greener holiday season

INSIGHT ARTICLE  | 

What are the various economic and marketplace trends in play for retailers this holiday shopping season? Jeffrey Edelman, director in RSM’s retail and consumer products industry practice, provides his insights.

Expecting sales +3.8 percent vs. 3.4 percent last year
This is slightly above the average of the past 10 years and could represent the best increase in many quarters. Unfortunately, traditional gift items will likely maintain the recent trends of trailing overall purchases, consistent with demographics and growing consumer interest in travel and leisure activities. Promotional activity, which seems to have been increasing annually, will likely be intense as retailers look to gain consumers’ wallet share early.

Online could capture 25 percent of incremental growth
Sales are estimated to increase 16 percent, a little faster than last year compared with +2 percent for mall-based retailers and mass merchants. Their comparable store sales, excluding the online component, are expected to fall in the mid-single-digit range. Importantly, this should represent another quarter of expense pressures at store level and online sales.

The role of the brick and mortar store is changing; it is not going away. A.T. Kearney notes that 95 percent of all retail sales are captured by retailers with a brick and mortar presence. Furthermore, 90 percent of all retail sales take place in physical stores. Online has the potential to enhance the shopping experience, particularly in store pickup and returns, thereby maintaining or increasing market share.

Black Friday likely to be less important
This single-day shopping option has now become a month-long event. A number of retailers and shopping malls have announced their intentions to close on Thanksgiving Day, or schedule openings later in the day; however, the internet remains open. Consumers have become more adept at searching out sneak preview bargains faster, although many are choosing to click to buy and pick up in the store. Retailers are beginning to think of a weekend or more for their special holiday discounts, rather than a one-day event, and the most important volume generator. This begs the question of how much more important the preceding week will be as promotions are moved earlier.

Lower inventories could be the swing factor
The spread between inventories and expected sales has shown steady improvement this year, beginning the holiday season in the best shape in many quarters. Thus, while planned promotional activity will be intense, clearance markdowns should be more favorable than last year. Nevertheless, stores will probably push for increased markdown allowances that could ensure higher gross margins in the quarter, which in turn could lift profits for many brick and mortar retailers. Many online sellers are still bearing the costs of store openings and customer acquisition.

Vendor profits will probably suffer for another quarter
Brands have had to carry more inventory risk as open-to-buy budgets have been paired back, which could benefit the off-price sector and other opportunistic buyers. In some cases, manufacturers have moved to smaller batch orders to minimize the potential for higher markdowns which could have raised costs slightly. For those that might have played it too close to the vest, there could be some negative impact from the Hanjin bankruptcy.

Light at the end of the tunnel
As previously mentioned, the fourth quarter promises to be a major turning point for retailer profits, whereas it will not be realized by vendors until spring. 

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