By this time each year, the National Retail Federation (NRF) would be out with its holiday retail forecast. But 2020 has been a year like no other, so NRF begged off making their prediction until November.
Comparing the forecasting process to completing a jigsaw puzzle with some of the pieces missing, NRF’s chief economist Jack Kleinhenz said in a statement:
“We are waiting for new data and are still assembling puzzle pieces for the 2020 holiday season. The test is whether consumer spending will be sustained amid wildcard puzzle pieces including policy surprises, the election and a resurgent virus.”
While many macroeconomic factors, like unemployment, wage growth and savings rates, go into economists’ models, consumer sentiment is the north star for revealing how retail will fare this holiday season. And that doesn’t look promising.
Consumers expect to keep a tight rein on their spending, as their financial worries mount, according to the latest holiday survey by Deloitte among 4,000 American consumers.
Holiday spending is expected to decline 7% from comparable levels in 2019.
Without a doubt, what people say they are going to do in surveys like this and what they actually do often differs, but with so much uncertainty about things that matter most to people – their health and financial wellbeing – it’s certain that holiday 2020 spending will be restrained.
Covid fears, destinations shift
Fear of contracting the Covid-19 virus will suppress in-store shopping among a majority (51%) of shoppers. Without them venturing into stores, which stimulates impulse purchases, their shopping will shift to more tactical and practical online shopping. Nearly two-thirds of their total expected $1,387 spend or $892 will be online, compared with only 28% ($390) in-store.
Avoiding crowds and the convenience of shopping from home will make in-store shopping a “must to avoid,” most especially malls, with 48% saying they prefer to shop at stores outside them.
In-store shopping visits will be curtailed as a result, dropping to an average of 5.2 store visits compared with 7.0 last year.
And shopping at local stores within 10 miles from home will be favored by 43% of shoppers, who are turned off to patronizing national retail chains.
Department stores, too, will feel less joy, as only 26% plan to shop there compared with 32% last year.
Financial worries mount
Not since the Great Recession have so many Americans felt a worsening of their financial situation. Nearly one in three consumers surveyed are going into the season in a weakened financial state, so much so that 40% of lower-income (under $50k) and 27% of middle-income consumers ($50k-$99k) fear they may be unable to make rent, mortgage, auto and credit card payments.
As a result, 38% of consumers plan to reduce spending on holiday purchases. Even 35% of the higher-income consumers ($100k+), who are less concerned with making their next scheduled payments, expect to cut spending this year, along with 36% of middle-income and 42% lower-income shoppers.
Less time for shopping
The Deloitte survey challenges the widely held belief that shopping will start earlier this year. This survey finds shoppers will cut short their shopping season by 1.5 weeks compared to last year.
This is another factor contributing to more restrained spending, as people who start holiday shopping early before Thanksgiving tend to spend more ($1,527) than people who shop late ($1,149).
This year more people will put off shopping till later, enabled by faster shipping and retailers offering more curbside pickup options.
On a positive note for retailers, consumers will spend more time at home this holiday season, shifting amounts budgeted for travel and hospitality to more spending for self-purchases and non-gift items. Budgets for traveling and socializing outside the home will be reduced by 34% this year, while self-purchases, or self-gifting, will rise 12%.
Nearly one-third of expected spending (31% or $435) will go toward non-gift items, including food and beverages, personal clothing and shoes, books, cosmetics, and digital entertainment.
A good chunk of that non-gift spending ($141) will be directed to home furnishings, holiday decor and do-it-yourself home improvement projects. And 45% of shoppers expect to make big-ticket purchases this year, as they watch for compelling holiday sales.
Pets will be the recipients of more holiday cheer this year. Half of those surveyed will treat their pets, favoring pet stores (49%) far more than online retailers (17%) for those purchases.
Retail will end 2020 on a slightly positive note
Even with consumers keeping a tight rein on holiday spending, Deloitte predicts that retail overall should see a 1% to 1.5% bump in revenues. That will be an unintended gift from the travel, hospitality and restaurant sectors that will continue to suffer.
Throughout this year retailers have been forced to flex as the rules changed. Those that flexed fastest are set to come out of what will be an extremely challenging holiday season in a better position than those that dragged their feet.
“In this season of uncertainty, price, value and convenience continue to be top considerations for consumers, as is the desire to get creative with how they celebrate the season with family, friends and pets, no matter the circumstances,” shared Rod Sides, Deloitte’s vice-chairman and leader of U.S. retail.
“As travel spend declines, retailers will likely benefit, and should receive a higher percentage of total holiday spend. The key for retailers is to stay flexible and offer options that appeal to consumers’ changing behaviors and address their evolving needs. Those that do will likely be better positioned for a bright holiday season.”
About Pam Danziger: Pamela N. Danziger is an internationally recognized expert specializing in consumer insights for marketers targeting the affluent consumer segment. She is president of Unity Marketing, a boutique marketing consulting firm she founded in 1992 where she leads with research to provide brands with actionable insights into the minds of their most profitable customers.
She is also a founding partner in Retail Rescue, a firm that provides retailers with advice, mentoring and support in Marketing, Management, Merchandising, Operations, Service and Selling.
A prolific writer, she is the author of eight books including Shops that POP! 7 Steps to Extraordinary Retail Success, written about and for independent retailers. She is a contributor to The Robin Report and Forbes.com. Pam is frequently called on to share new insights with audiences and business leaders all over the world. Contact her at firstname.lastname@example.org.