Generational shifts in spending and a willingness to ‘splurge’ amidst economic conditions might keep 2022 on pace with last year

Ready or not, the holidays are upon us, at least from a retail sales perspective. Given economic uncertainty, persistent consumer inflation and continued shortages across many merchandise categories, retailers are preparing for another disruptive holiday season. Retailers were inherently blending holidays earlier and earlier into promotions. Supply chain issues likely exacerbated that trend unintentionally. However, there is plenty of good news, regarding consumer sentiment, and their desire to spend this holiday season. Here's a look at the myriad forces that will shape this important retail season.

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Holiday Shopping Shaped by Optimism, Uncertainty

After two years of upheaval from the pandemic, the holidays are back in full swing, but with a few twists. There are signs of increased optimism offset by concerns over the economy and eroding purchasing power. Many consumers have stockpiled cash or savings, and are ready to spend, but they also plan to be more restrained in their spending due to economic concerns concerns about and dipping too far in short-term debt.

Overall, this holiday season promises to be a mixed bag for retailers -- and a busy one for industrial warehouse operators as they maneuver through the ever-changing retail landscape. 

A 2022 holiday shopping report by McKinsey & Company shows that consumer optimism for holiday shopping jumped by 21% over last year's figure, with many saying they have plenty of cash to spend. Consumers are also concerned about the economy, however, and are shifting toward shopping for value versus indulgence.

Offsetting expectations in forward-looking surveys and a move to value

According to Forbes, holiday spending is expected to drop by $30 billion this year, with 58% of shoppers reducing their spending, particularly on clothes and footwear. Despite that more pessimistic outlook, many retailers are still expecting a steady flow of customers with sales volumes holding firm or increasing slightly from last year. Some of those upward shifts in volume could be due to inflation pushing up costs, however.

Therein lies the quandary for retailers, as there are varying outlooks and many differing economic forces at play. The result is a frenzied and potentially inconsistent environment for retailers, as they navigate prolonged supply chain issues while also trying to broaden their inventory to reflect multiple spending parameters. Many of those businesses are working through seasonal inventory stockpiles and liquidations of goods from earlier this year when economic instability prompted an initial pullback in consumer spending. Several businesses are taking a financial hit now in order to regroup and try to improve their performance during this critical shopping season. 

Given the ongoing economic disruption and supply shortages, many retailers have also moved up their buying schedules as well as their holiday promotional period. They are also increasing the frequency of sales; pushing membership benefits to drive loyalty spending; and widening holiday return windows to attract shoppers, according to the McKinsey & Company report.

Other brands have focused on the shopping environment in hopes of moving beyond price and supply of goods to build loyalty. Some brands are turning to a technology-driven shopping experience, while others, such as Foxtrot, are focused on experiential retail with curated food and drink for pickup or delivery.

The long, painful demise of Black Friday and Cyber Monday- Does anyone even care?

One notable shift is the "always on sale somewhere" mindset that has permeated the retail industry and diluted the typical blockbuster Black Friday and Cyber Monday sales days. And, while Cyber Monday remain a force, it will be competing for airtime with many more ongoing and sporadic sales.

Overall, online sales may soften due to the economic climate and a natural flattening of pandemic ordering. Adobe is predicting only a 2.5% growth in online sales from November 1 to December 31.

The convergence of e-commerce buying and the goal of attracting consumers back into stocks has progressively compressed retailer sale offerings, even before the pandemic, blending fall and winter holiday seasons into an unwinding and madcap blur that is unlikely to stop. That could likely help to continue to spread out peak shipping seasons and promote more consistent warehouse & demand.

Retail surges help boost warehouse usage

This increased retail activity is always good news for the industrial real estate sector heading into year-end, regardless of in-store or e-commerce buying - which continues to experience low vacancy rates for warehouse & distribution space across most major U.S. markets.

In brief review of some early earnings reports, retailers are watching inventory levels closely, as they try to improve efficiencies. Many have a goal to continue to purge outdated items and do a reset that will resonate with consumers. According to industry research noted in Supply Dive, retail inventories were up 31% in Q2 year-over-year. 

Thanks, I love it! (NOT!)

Another element of e-commerce that has buoyed industrial space requirements is the fact that many items purchased are later returned. And, rather than stand in long lines in the stores, consumers often elect to return goods online—everything from clothes that don’t fit or aren’t the right color to electronics. As e-commerce grows, so does the need for a strong reverse logistics program. This will be another telling year for reverse logistics and its overall impact on supply chains, in addition to how returns space is efficiently utilized.

This is not the end, only the beginning

The retail landscape remains challenging, although there are signs of optimism as consumers look to engage more fully this holiday shopping season. The sentiment has changed from the early days of the pandemic when consumers avoided in-person shopping and expanded their online activity.

People are ready to shop. Hopefully, many have savings to deploy. Retailers are trying multiple strategies to create new and enticing experiences for shoppers. Persistent economic uncertainty is the overriding issue. However, that uncertainty could create some turmoil over the next two months. More to come!

Sources: Forbes, McKinsey & Company, Supply Chain Dive

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