Does 5.5% Holiday Sales Increase Signal A 2018 Retail Rebound?

While 2017 was arguably a year of turmoil for retailers, the industry managed to end on a high note: $691.6 billion in holiday sales for November and December, a 5.5% increase over the same period in 2016, according to data from the National Retail Federation (NRF). The results exceeded the NRF forecast of a 3.6% to 4% increase, and marked the largest percentage jump since the 5.2% seen in 2010, when the country was coming out of the Great Recession of 2008-2009.

Another sign that things are looking up: growth was not limited to a few big retailers or specific verticals. “The holiday results were very strong, showing renewed confidence in the economy and some of the positive aspects of the tax cuts,” said Michael Brown, a partner in the retail practice of A.T. Kearney and author of an upcoming report on the future of retail real estate. “Additionally, the performance improvements seem to be across the board.”

Consumer spending patterns spell good news for retail and the economy as a whole. “Big-ticket drove growth,” said Deborah Weinswig, Managing Director, Fung Global Retail & Technology. “Reflecting strong consumer confidence and shoppers’ willingness to invest in their homes, big-ticket sectors such as home improvement, furniture, electronics and appliance stores led growth in the holiday season. Such bullish consumer behavior bodes well for retail growth in 2018.”

Here are some additional key data points from holiday 2017:

Retailers held discounts in check: Average discounts offered in Black Friday circulars were 44%, down from 45% in 2016;
Online retailers cut marketing costs: e-Tailers cut marketing costs 22% but still managed to have a robust holiday season;
Mobile continued its march: Mobile online holiday season revenue totaled $108.2 billion, a 14.7% growth rate over the previous year. During the five-day Thanksgiving weekend (encompassing Cyber Monday), 52% of shopper visits and 36% of revenue came from mobile devices; and
The new year looks promising: Retail growth for the full year was 4% (excluding gasoline and auto sales) and could rise to 4.5% for 2018.

Some Good News (At Last) From Department Stores

Even the beleaguered department store sector generated a few winners this holiday season. “Kohl’s knocked it out of the part with a 6.9% comp store sales increase,” said Weinswig in an interview with Retail TouchPoints. “Is this a bounce back for department stores? Maybe. JCPenney also saw a strong holiday, though Macy’s comp was a slim 1.1% and Sears went south.”

Target also generated a healthy 3.4% same-store sales increase for November and December, according to Gordon Haskett Research Advisors.

Kohl’s physical footprint and a new partnership with Amazon are likely explanations for its strong season. “Kohl’s is mainly in off-mall locations, and open-air shopping centers have tended to prove more resilient than the kind of regional malls whose struggles make the headlines,” said Weinswig. “Kohl’s agreement to sell Amazon technology products and accept Amazon returns in its stores may have supported this growth too.”

Holiday Success Wasn’t ‘Juiced’ With Discounts

Beyond the solid top-line results, industry experts pointed to more tightly controlled marketing budgets, with less reliance on promotions and discounts than in recent years. “Retailers were smart about the amount of inventory they carried, so there was less discounting,” said Mihir Kittur, Chief Commercial Officer at Ugam. “That helped many retailers do well.”

According to MarketTrack, the average discount offered by brick-and-mortar retailers in Black Friday circulars was 44%, down from 45% in 2016. “Although discounting is generally prevalent and aggressive during the holiday season, we found that promotions were mostly in alignment with the same period last year, which we attribute to better inventory control and increased consumer spending,” said Weinswig.

Online Marketing Costs Dropped 22%

Digital retailers in particular…