December retail sales to be muted amid shutdowns and earlier holiday purchasing

15 December 2020 Consulting.us
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US retail sales are projected to fall by as much as 4% in December, according to consulting firm Berkeley Research Group (BRG). The top driving factors include earlier holiday shopping in October and November, rising Covid-19 cases nationwide, and dropping consumer sentiment.

After the initial shock of the April-May shutdown, by late fall most retail sectors had achieved year-over-year (YoY) increases. Retailers built on the summer rebound with further strong sales in the fall.

According to BRG research, retailers pushed holiday promotions earlier, aiming to grab sales earlier and limit traffic-driving events such as Black Friday and Holiday Monday. Principal among them was Prime Day, which shifted from its traditional July date to October.

These efforts led to 8.5% retail growth YoY in October, according to the US Census Bureau. November sales growth, meanwhile, is expected to be in excess of 10%.

However, the rebounds have been uneven across retail categories. Online shopping has been the big winner, registering the largest YoY increase through October, aided by the particularities of the pandemic crisis. Other sectors, such as grocery stores, home improvement stores, and sporting goods have seen YoY increases because of the pandemic’s effect on consumer buying habits.

YoY projection

Specialty apparel and departments stores, which were already struggling before the pandemic, have been hammered even harder because of Covid-19. Work-from-home and a lack of events or going out has eliminated the need to buy dressy clothing, while lockdowns and consumer aversion to in-store shopping has further rocked department stores, which rely on in-mall and in-store traffic to drive sales.

Overall, BRG projects that retail sales in 2020 will see an increase of 3% YoY, as well as a 3% jump in the holiday shopping season – which spans November and December. However, December sales are expected to fall by 2-4% YoY due to the pull forward of holiday sales, an increase in shutdowns, and slowing consumer activity.

Covid cases are climbing at an alarming rate, with the ten most populous states experiencing case rate increases of greater than 15% in the last month. Though e-commerce and essential stores (mass merchants, food, pharmacy, and home improvement) will benefit from renewed lockdowns, other sectors, such as apparel and department stores, will be further hammered by restrictions and consumer avoidance.

University of Michigan - Consumer Sentiment

BRG’s report notes that consumer mindset and declining spending power will have the most significant effect on December sales. Though still relatively high, consumer sentiment is dropping, approaching a two-year low. Unemployment, uncertainty about the future of the pandemic, and shutdowns have caused consumers to tighten their purse-strings.

Though the vaccine rollout is breeding market optimism, any effect on the health crisis is months away, since widespread production and distribution remains a massive and lengthy undertaking. Unemployment, meanwhile, is at nearly 7% and federal support is set to evaporate for 9.1 million unemployed people at the end of December. This would take an estimated $2.9 billion from consumer pockets per week.

There are also signs the resurgent pandemic wave is again slowing the economy, with the number of Americans seeking unemployment rising in early November to 742,000 – the first increase in five weeks.

"Covid-19 is poised to once again disrupt retail activity across the country for months, dramatically reducing store traffic, as we saw on Black Friday," said Rick Maicki, a managing director in BRG's retail performance improvement practice. "But retailers can weather the storm through a combination of inventory management, promotional planning and leveraging shopping trends caused by the pandemic – all while actively monitoring the situation and responding quickly."