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Here’s what’s in store for the 2020 holiday shopping season

Karl Haller, Consumer Center of Competency leader and retail industry expert for IBM Global Business Services, shares insight from IBM's annual Retail Forecast. For retailers, he writes, it's a time to run the business at a hyper-local level — maximizing sales opportunities where conditions support and saving expenses where they don't.

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December 10, 2020 by Karl Haller — Consumer Center of Competency leader and retail industry expert for IBM Global Business Services, IBM

With COVID-19 on the upswing (again) and mall traffic continuing to run 20(ish) percent down vs. last year, retailers are quite anxious about how the holiday shopping season will unfold.

For some, it's been a devastating year, with an estimated 25,000 store closures and iconic brands such as Neiman Marcus and Brooks Brothers (my former employer, and also the oldest clothier in the US) filing for Chapter 11 bankruptcy. On the flipside, it's never been a better time to be in grocery or e-commerce, where sales are surging.

Since March, approximately $100 billion in consumer spending has shifted to essential retailers (grocery, home improvement, e-commerce, drugstores, and general merchandise other than department stores) from those "non-essential" retailers (everyone else) who were forced to close during the COVID-lockdowns.

And consumers remain cautious and concerned. Two-thirds are concerned about their family's health and safety, 56% think the economic downturn will continue into 2021 or beyond, and 47% do not plan to visit a shopping mall before next year, if at all.

Compounding that, there are still bottlenecks in production and distribution, as some companies are still playing catch-up with surges in demand, and others are trying to re-establish production and flow of goods following the cancellations in fall/holiday goods that took place back in April.

What does this spell for the holiday shopping season? Not surprisingly, IBM's annual Retail Forecast offers only a few reasons for optimism. For Q4 (Oct-Dec), we project a 1% overall increase in retail sales compared to 2019, with varying performance across the different retail sectors. Specifically, we foresee:

A digital-first holiday shopping season

Online shopping has been strong all year and will continue to be the preferred sales channel for many consumers throughout the holiday season. Even as consumers have shifted toward e-commerce in recent years, the pandemic has accelerated that shift (by roughly five years).

Overall, e-commerce sales are projected to grow by 30% in Q4 as consumers accelerate their online shopping while turning to stores for pickup, local delivery, and in some cases, returns.

Essential retailers will drive sales

As they have since March, essential retailers will continue to drive overall sales through the end of the year, with spending heavily weighted toward retail lines of trade such as home improvement (+17%) and grocery stores (+11%). Having stayed open during the lockdown, these retailers are benefiting from changes in consumer spending habits as shoppers increasingly lean on them for both essential and discretionary purchases.

Products beat out experiences

With many consumers still wary about travel and crowded public spaces, sales of goods will see a resurgence this year over spending on experiences. This represents a significant shift. It was only a few years ago that spending on experiences was growing at four times the rate of spending on products.

And with evidence continuing to indicate a "K-shaped" recovery, well-off consumers will continue to increase their spending on big ticket home and recreational purchases, which have already been running at a +20% pace since summer.

Performance will vary…greatly

In addition to wide variances in sales from one retailer to the next, continued localized outbreaks, in combination with differing attitudes and behaviors, and of course, localized weather events, will drive significant variances city-by-city and store-by-store.

More than ever this is not the time to deviate to the mean. Instead, this is the time to run the business at a hyper-local level — maximizing sales opportunities where conditions support and saving expenses where they don't.

For those retailers who can scale up their digital operations and run their stores in a localized manner, the holiday will be bright. For those who cannot, they may be facing the proverbial lump of coal in their stockings.

Karl Haller is Consumer Center of Competency leader and retail industry expert for IBM Global Business Services.

About Karl Haller

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