November 24, 2020

U.S. Retailers Set Promotions for an Unusual Black Friday

by Jharonne Martis.

COVID-19 has changed the in-store shopping experience in 2020, including the holiday season. Black Friday (Nov. 27 this year) – the day after the U.S. Thanksgiving Day holiday – has traditionally been one of the most critical retail sales days. It can even make or break fourth quarter profits. Supposedly, it turns red ink into black on the ledgers, thus the name.

This year, however, consumers are gravitating online for safe, contactless, fast and efficient shopping. Retailers also started offering earlier-than-usual discounts to attract shoppers, manage demand and supply chains. This was reflected in the October retail sales results, which were primarily driven by strong online sales growth.

U.S. consumers are telling us that the online shopping trend looks permanent, Refinitiv discovered in a survey collaboration with Maru/Blue Public Opinion. This survey suggests that the majority of U.S. consumers (67%) plan to continue shopping online vs. at brick-and-mortar retailers, even if a vaccine becomes available and the economy returns to “normal.” Accordingly, in the first half of 2020, U.S. e-commerce sales jumped 29.6% YoY and are projected to grow even further to 43.6% YoY in the second half of the year, as per Refinitiv IFR.

Here are some highlights as we head into this year’s Black Friday season:

  • Over half of Americans plan to continue shopping online vs. bricks and mortar retail even if a vaccine becomes available and the economy returns to “normal.”
  • 61% of Americans intend to shop for Black Friday deals; 24% are certain, and the remaining 37% will be persuaded by the type of sale or circumstance.
  • However, the level of promotional discounting is pretty typical amongst U.S. retailers, even before the pandemic.
  • For the week ending November 21, the average promotional discount was 34.7%, compared with two months prior at 36.6%, Refinitiv discovered in a collaboration with StyleSage Co.
  • The frequency of promotional emails is changing. StyleSage Co. saw an increase since Amazon Prime week of 27%, and 31% from two months ago, in the number of emails being sent out.
  • The mid-tier department sector saw the biggest increase in discount penetration (how much of the assortment is on sale) 67% this year vs 63% in 2019.
  • At the category level, average discounts are up across apparel, footwear and bags, with apparel leading in discounts, at 22% currently (versus 16% in 2019).
  • The higher discount levels for apparel and footwear bode well for shoppers, as Refinitiv discovered in its survey collaboration with Maru/Blue Public Opinion, that consumers are planning to buy mostly clothing, and accessories if on sale.
  • Consumers are telling us they plan to open up their wallets for clothing/accessories (50%), followed by electronics (35%) and gift cards (32%).
  • 64% of the survey respondents plan to spend less on Black Friday this year than they did last year, spending $479.61 on average.
  • Last year, 49% of the respondents shopped in store on Black Friday 2019. This year, 74% of respondents will shop primarily online, an improvement from the 50% that shopped online last year.

What consumers are telling us

Many retailers are hoping that this year’s Black Friday/holiday promotions will help them back into the black. However, as another wave of COVID-19 looms, consumers have different plans for the 2020 holiday season. Refinitiv discovered this in a collaboration with Maru/Blue Public Opinion, a panel and data service insight firm. The findings and detailed tables can be found here: https://www.marublue.com/american-polls.

The survey shows that 61% of Americans intend to shop for Black Friday deals (with 24% of those saying they will definitely do so), and the remaining 37% will be persuaded by the type of sale or circumstance. The bulk of Black Friday shoppers plan to purchase items for themselves and others (31%).

When it comes to their personal economic situation, 41% of Americans indicated that they are tight with their finances but pretty sure they can hang on with this pandemic if it takes a year to have vaccines for everyone (Exhibit 1). Likewise, 39% of respondents suggested they are just fine and living well during this pandemic and welcome the vaccine anytime it arrives, sooner than later. This is in line with the latest economic data: the unemployment rate fell to 6.9% in October from 10.2% in July, and the personal savings rate is still high at 14.3%.

Exhibit 1: Personal Finances Question: Which is closest to your view because of the COVID-19 pandemic?

Source: Maru/Blue Public Opinion Survey

Still, 64% of respondents plan to spend less on Black Friday this year than they did last year, spending $479.61 on average. Last year, 49% of the respondents shopped in-store on Black Friday 2019. This year, 74% of respondents will shop primarily online, up from the 50% that shopped online last year.

Fifty percent of survey respondents tell us they plan to open their wallets for clothing/accessories, followed by electronics and gift cards (Exhibit 2).

Exhibit 2: Items U.S. Consumers are Looking to Purchase on Black Friday 2020

Source: Maru/Blue Public Opinion Survey.

The survey also revealed that 78% of U.S. consumers will be staying in their residences this Thanksgiving and 60% are specifically doing this due to the risk of catching the coronavirus. On the other hand, 19% of respondents plan to travel during Thanksgiving and are aware there is a health risk by travelling and being with others (72%). Regardless of Thanksgiving travel plans, 75% of respondents are concerned they could catch COVID-19.

Exhibit 3: How U.S. Consumers Intend to Celebrate Thanksgiving

Source: Maru/Blue Public Opinion Survey.

Consumers still love to procrastinate when it comes to holiday shopping. Forty-three percent of survey respondents will take their time for Christmas or holiday shopping, while 42% started earlier-than-usual or at the usual time for Christmas or holiday shopping.

Over the years, online retail has made comparison shopping for deals much easier. As a result, the shopper is more conscientious about what he/she is purchasing vs. doing more impulse shopping on Black Friday. Despite this, the survey results suggest that the element of impulse shopping still remains relevant to shoppers. Respondents indicated they are certain they will make a spur of the moment purchase during Black Friday (63%).

Brand loyalty is also very important to shoppers, as 64% of them already know the exact stores they plan to shop at for Black Friday. And, 71% responded that most of their Black Friday purchases are things they would get anyway, while 61% have a specific shopping list they will follow for Black Friday.

Online deals vs. last year

Retailers have been ramping up their Black Friday/holiday promotions since October and sending emails about the upcoming deals. Because of the coronavirus pandemic, Amazon moved its Prime Day sales event this year to October 13 and 14, marking the beginning of the holiday season discounts.

However, what’s interesting is that the average promotional discount is currently slightly lower than it was two months ago, as Refinitiv discovered in a collaboration with StyleSage Co., which analyzes retailers, brands, online trends and products across the globe. For the week ending November 21, they found that the average promotional discount was 34.7%, compared with two months prior at 36.6%.  This level of promotional discounting is pretty typical amongst U.S. retailers, even before the pandemic.

However, what is changing is the frequency with which retailers are engaging in promotional emails. StyleSage Co. saw an increase in the number of emails being sent out — 27% since Prime week and 31% from two months ago.

What type of promotions are we seeing?

Currently, many retailers are promoting new item-level markdowns, to give shoppers first dibs on merchandise they’ve had their eyes on. Based on historical trends, it is anticipated that going into Black Friday and Cyber Monday, many of these retailers will offer sitewide discounts.

U.S. mall stores have been struggling for some time, even ahead of the pandemic, including department stores. More than half (54%) of the online merchandise for U.S. mall stores is on sale this week. This discount penetration (how much of the assortment is on sale) is below where it was during Prime week (62%), however. The current U.S. mall average percent discount (21%) is up slightly from one year ago (20%), but below Prime week (23%).

We see that item-level discounts remain prevalent at department stores such as Macy’s and Kohl’s, with 67% of the merchandise currently on sale, compared to 63% last year, which could further continue to hurt profits.

Premium sector

What’s surprising is the amount of discounting among luxury retailers during the 2020 pandemic — the highest levels seen since 2016. This is a sector that traditionally is powered by jetsetters and international travelers opening their wallets at exotic locations. Since the pandemic, the travel industry has come to a halt, depressing demand for luxury goods.

It was a volatile year for the premium sector. Both the average discount and discount penetration started rising in March 2020, when most of the world went into lockdown, and peaked in May/June. Since then both metrics started to decline, then rose for Prime week and have been moving downwards since then. Currently, both metrics have stabilized going into the holiday season. The discount penetration level is presently slightly lower (30%) this year than last year (32%). The average discounts are the same as last year at 14%.

Exhibit 4: Premium Sector Discount Penetration and Average Discount: 2016-2020


Source: StyleSage Co.

What’s on sale, what’s not?

The most common promotional online keywords being used right now are “gifts,” “cozy,” “BOGO” (buy one, get one), “shoes,” “boots,” new.”

Shoppers want to know what is on sale, but what’s interesting is what’s not on sale. StyleSage Co. data show that sleepwear/intimates, handbags, slippers, sneakers, and swimwear are least likely to be discounted going into the holiday weekend.

Mid-tier department store sector

This sector has experienced a slight increase in discount penetration — 63% in 2019 to 67% this year. This means that still over half of inventories are on sale. That’s extremely high and the question is how long this sector can maintain these high discount levels, which come at the expense of margins. In addition, the average discount has also increased from last year at the same time – from 23% in 2019 to 27% in 2020.

Exhibit 5: Mid Sector Discount Penetration and Average Discount: 2016 – 2020

Source: StyleSage, Co.

Specialty sector

Because of the coronavirus pandemic, Amazon moved its Prime Day sales event this year to October 13 and 14. The specialty sector increased its promotions for that particular Prime week. The discount penetration rose to 62% that week, with an average discount of 23%. Since then, both averages have decreased. In this week of Black Friday, 54% of the merchandise in this sector is on sale, with an average discount of 21%, higher than last year at the same time (15%).

At the category level, average discounts are up across apparel, footwear and bags, with apparel leading in discounts, at 22% currently (versus 16% in 2019).

Exhibit 6: Specialty Sector Discount Penetration and Average Discount 2016 – 2020

Source: StyleSage Co.

Retail sales

The higher discount levels for apparel and footwear bode well for shoppers. Refinitiv discovered in its collaboration with Maru/Blue Public Opinion that consumers are planning to buy mostly clothing, and accessories, if on sale. The apparel and footwear sectors are expected to be among the weakest same store sales performers this holiday season. However, a few standouts that are expected to post strong same store sales include Crocs with a robust 32.8% SSS estimate, followed by Lululemon’s 7.4% SSS (Exhibit 7).

Exhibit 7: Q4 2020 Strongest Apparel and Footwear Same Store Sales

Source: I/B/E/S data from Refinitiv

The Refinitiv SSS index is expected to see a 6.4% gain in Q4 2020 (Exhibit 8). A 3.0% SSS reflects healthy consumer spending. Thus, the 6.4% SSS estimate suggests spending is robust as it’s above the 2.3% result seen in Q4 2019.

It’s important to note that the 2020 results are not an apples-to-apples comparison vs. previous years as many retailers were closed due to shelter-in-place regulationsAs a result, a number of retailers did not report SSS in 2020, while those that reported saw a huge spike in SSS, boosted by key essential items.

When looking at the overall retail picture, it is evident that the retailers with a strong omnichannel and e-commerce strategy will continue to succeed. On the other hand, brick-and-mortar sales could continue to deteriorate. Winter weather will hurt outdoor dining, several government income support programs are scheduled to end soon, and another wave of COVID-19 looms in the United States.

Exhibit 8: Refinitiv Same Store Sales Index: 2017 – Present

Source: I/B/E/S data from Refinitiv

Still, for those reporting comps, it is evident that strength is still coming from the stay-at-home stocks. Consumers continue to invest in improving the stay-at-home experience. As a result, the home improvement sector has the highest Q4 SSS at 12.4%, followed by computer electronics 9.1% SSS, which about 35% of survey respondents indicated they plan to shop for. Consumers continue to fix their homes during quarantine, which is boosting sales at Lowe’s and Home Depot.

Exhibit 9: Refinitiv Same Store Sales Sector Indices: Q4 2020 Est. vs. Q4 2019 Actual

Source: I/B/E/S data from Refinitiv

 

 

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