October 7, 2020

Key Takeaways

Slower Brick-and-Mortar Sales

Retailers face an unpredictable holiday season as cautious consumers balance the spirit of seasonal shopping with COVID-19’s impact on the economy and accessibility to physical stores. Brick-and-mortar sales will slow, but total retail sales will increase from unprecedented e-commerce growth.

Longer Shopping Season

The traditional holiday shopping season will start earlier than ever before. Retailers will try to spread out demand to prevent overtaxing supply chains and control crowds as consumers seek early promotional sales.

Second Surge in E-Commerce Sales This Year

E-commerce sales will more than double their record growth set in 2019, furthering the structural shift toward multichannel retailing. Retailers must prepare for a second surge in online spending this year, following the lockdown-related surge in April and May, to manage inventory and control shipping and delivery costs.

Balancing Safety & Experience in Physical Retail

Brick-and-mortar retail is being reimagined in the COVID era to provide safety, comfort and convenience for employees and consumers, while maintaining the festivity and excitement of the holiday season.

Slower Brick-and-Mortar Sales

Consumer spending is leading the U.S. economic recovery from the COVID-19-induced recession, with retail sales exceeding pre-pandemic levels in Q3. Nevertheless, ongoing economic headwinds and concerns over a fall/winter spike in the virus are creating an uncertain and unpredictable 2020 holiday shopping season.

2020 holiday retail sales growth is expected to be less than the 4.1% annual average since 2010, culminating in $730.2 billion in total sales last year, according to the U.S. Census Bureau. CBRE Retail Research forecasts holiday retail sales growth of less than 2% this year, assuming there is no major resurgence of the virus or mandated store closures.

Brick-and-mortar retail sales will decline, but e-commerce sales will have record year-over-year growth of at least 40% in November and December combined.

While the U.S. labor market is improving, CBRE Research forecasts an unemployment rate of 9.1% in Q4. Unless additional government stimulus is forthcoming, many consumers will have to balance weakened economic conditions and safety concerns with preserving the excitement of gift-giving and the spirit of celebration. The volatile recovery has been uneven among income levels, so holiday spending by wealthier consumers likely will be less affected than spending by lower-income ones. Spending in Q2 was boosted by enhanced unemployment benefits, which have since expired. Consumers likely will be more discerning and prioritize spending on gifts for immediate family versus the broader array of friends, coworkers and teachers. Spending on holiday travel and parties also will be less.

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Consumer spending in recent years was concentrated on travel, gathering, experience and impulse-driven purchases. But as COVID-19 disrupted everyday life, consumer spending patterns shifted drastically by category. The rapid transition to consumption focused on essential goods and services to support the new homebody lifestyle will carry over to holiday spending.

The top category sales this holiday season will include value and luxury lounge & athleisure wear, beauty, home furnishings & décor, tools, appliances, cooking & kitchen equipment, streaming & subscription services and at-home entertainment, gaming & fitness. Most apparel sales will continue to decline, particularly for fast fashion, party dresses, evening wear, career wear and tailored garments. Holiday sales of electronics, typically a very strong seasonal category, are expected to weaken after a summer surge in spending on home-office equipment, entertainment and remote learning.

Longer Shopping Season

The peak five-day shopping period from Thanksgiving to Cyber Monday has evolved over the past several years with concentrated spending shifting away from traditional Black Friday doorbusters and to early openings on Thanksgiving Day and increased online sales on Cyber Monday.

This year will mark the most dramatic change to the shopping timeline and extension of the holiday sales season.

Many retailers and mall owners, including Best Buy, Bed Bath & Beyond, Dick’s, Walmart, Target and Simon Property Group, will not open on Thanksgiving Day this year so employees can spend the holiday with their families. Additionally, they will modify Black Friday promotions and hours of operation to avoid early-morning lines and overcrowding amid ongoing social-distancing measures and reduced store capacities. The safety and convenience of shoppers and employees are the top priority, but retailers and mall owners must make up for these lost sales opportunities by lengthening the holiday shopping season. For example, Home Depot will forgo Black Friday deals altogether and spread promotions throughout November and December.

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Consumers will shop earlier than ever this year to avoid crowds and limit anxiety over in-store shopping, product scarcity, shipping costs and delivery timeframes for online orders. Many retailers are expected to start their holiday sales before Halloween to meet consumer demand. The earlier start also will allow retailers to better manage limited inventory, product availability, distribution and shipping to avoid the usual seasonal rush during a year in which overtaxed supply chains and timely delivery have been ongoing challenges.

The announcement that this year’s delayed Amazon Prime Day will occur October 13 and 14 adds additional pressure to start the holiday sales season earlier. Typically held in July as a kickoff to back-to-school shopping, Prime Day racked up $7.16 billion in sales last year, a 71% increase from2018, according to Digital Commerce 360. Other retailers often compete with Prime Day by offering price matching, which will drive their digital sales earlier in October.

Second Surge in E-Commerce Sales This Year

COVID-19 shifted consumer shopping patterns and forced greater adoption of e-commerce across all generations, which sustained retailers that had functioning multichannel platforms during store closures. The one certainty this holiday season is the continued meteoric rise in e-commerce sales with a second surge in online spending this year expected in Q4 as retailers double down on capturing online market share amid decreased physical store sales.

With record 14% growth, holiday e-commerce sales totaled $167.8 billion last year, according to the National Retail Federation.

CBRE Retail Research forecasts 2020 holiday e-commerce sales growth to more than double to at least 40%, putting e-commerce’s share of total retail sales in November and December at 39%.

Figure 1: Holiday Retail Sales

2020-Retail-Holiday-Trends-Figure-1

Source: National Retail Federation, CBRE Research, September 2020.

More sales are expected on Cyber Monday as retailers enhance virtual showrooming and drive online purchasing to replicate the deals, impulse buys and excitement that typically occurs in physical stores on Black Friday. However, retailers must prepare to spread online sales across October, November and December. Having already experienced holiday-like e-commerce traffic and sales volumes in Q2 and Q3 for which they were unprepared, retailers are working diligently to gauge consumer demand and quickly improve online presence, product availability, fulfillment efficiency and to optimize pricing and shipping costs. Brands must be competitive on value and convenience, while providing a frictionless multichannel experience.

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Retailers must also factor in rising carrier surcharges and escalating delivery costs implemented by UPS, USPS and FedEx during peak season, as reported by the Wall Street Journal. Increased carrier fees have been a direct byproduct of the explosive growth of e-commerce sales in 2020, presenting a significant added burden to retailers. The delivery of online orders is not as profitable as purchases fulfilled in-store, but retailers want to avoid raising product prices and passing through increased shipping fees to consumers. The longer consumers wait to shop this holiday season, the more they face limited inventory availability, increased shipping prices and delayed delivery.

Balancing Safety & Experience in Physical Retail

Whereas the 2019 store experience was high-touch, interactive and all about product engagement, brick-and-mortar retail in 2020 emphasizes health, safety and efficiency. Although retailers are defensively investing heavily in their e-commerce platforms to capture sales and market share, they also are reimagining the holiday store experience to make customers feel comfortable and safe in the COVID-19 era. This is especially true for small businesses, many of which do not have an e-commerce platform and rely mostly on foot traffic.

Retailers and shopping center owners are creatively maximizing the use of “in-and-out” shopping to engage consumers with merchandise and sales associates in-store while pushing all other activities out of the store. Vacant retail spaces, kiosks, common areas and outdoor space on sidewalks and in parking lots when weather permits are being utilized for payment, purchase of gift cards, gift wrapping and returns.

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Retailers are also using pop-up locations to accommodate more customers amid social distancing, showcase featured products, fulfill additional curbside or buy-online/pick-up-in-store (BOPIS) orders and liquidate Q2 and Q3 surplus inventory. For example, Lululemon announced it will open 70 pop-ups near existing stores this holiday season to capitalize on the increased sales potential of its merchandise category and accommodate expanded omnichannel sales. Curbside pick-up and BOPIS, which have grown by more than 500% during the pandemic, will continue to attract customers looking to decrease dwell time, according to Digital Commerce 360.

Holiday events are being transformed in stores and malls across the U.S. to provide consumer comfort, safety and a festive atmosphere. Retailers are using contactless engagement and sales, one-way aisles and virtual waitlists to manage in-store traffic. Malls are deploying security to enforce social distancing and mask-wearing while providing stylized safety communications and sanitization stations throughout the properties. Limited “Safe Santa” photo programs and micro events will replace large-scale attractions to protect employees and consumers while still promoting the spirit of the holiday season in a year when it is needed most.

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