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December 23, 2021

U.S. Retail Q4 2021 Holiday Sales and 2022 Outlook

by Jharonne Martis.

Due to inflation, several retailers are already dealing with higher cost of goods and services (COGS) – and dealing with the supply chain crisis. They just finished reporting Q3 earnings; 141 retailers have already discussed inflation worries, and 192 have mentioned the supply issues during their earnings calls.

Consumers’ short-term inflation expectations rose again, with the median cost of living increase for next year pushing up from 5.7% to 6.0%. This increase is twice the pace of expectations for income growth, which slid to 2.8% from 3.0%, according to the New York Federal Reserve.

As a result, the latest Ipsos U.S. Consumer Confidence Tracker survey shows Americans to be “slightly less comfortable making both major purchases and other household purchases. While 66% anticipate that inflation will continue to rise, only 15% expect their standard of living will decline over the next year.”

Consumer sentiment

The latest Refinitiv/Ipsos Consumer Confidence Index reading for December Is still lower than it has been for much of 2021. This shows that consumers feel cautious in the face of higher inflation and worries around the new Omicron variant.

Exhibit 1: The Refinitiv/Ipsos Consumer Sentiment Index

Source: Refinitiv Eikon

Higher inflation means paying more for gifts

Retailers have been facing supply chain issues since the beginning of the pandemic. As a result, their inventory has been constrained this year. This, combined with strong pent-up demand from consumers, gives retailers a unique and powerful opportunity to pull back on aggressive discounting.

Going into Black Friday 2021, the overall average promotional discount was the lowest, compared to previous years. This year, there are also fewer sitewide promotions. This traditionally does not change much going into Christmas, Refinitiv discovered in a collaboration with StyleSage Co., which analyzes retailers, brands, online trends and products across the globe.

Historically, the StyleSage discount data shows that the discount penetration (how much of the assortment is on sale) and average discount doesn’t move much from Black Friday to Christmas.

Currently, the average promotional discount is lower than in previous years. It is also lower than it was two months ago and its YTD average, as per the StyleSage data. For the week of Dec. 20, the average promotional discount is 35.1%, lower than the 37.0% two months prior.  This level of promotional discounting is also lower than the YTD average of 38.4% and is traditionally higher amongst U.S. mall stores, entering the holiday season.

U.S. mall stores

In pre-pandemic times, U.S. mall stores lured shoppers in with steep discounts. This year, less than half (45%) 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 the same week last year (55%). Moreover, it is the lowest Christmas week discount penetration ever, since StyleSage started tracking this data in 2016.

The current U.S. mall average percent discount (16%) is also down from one year ago (20%), and it’s also the lowest Black Friday discount level since 2016.

Exhibit 2: U.S. Mall Stores Discount Penetration and Average Discount 2016 – 2021

Source: StyleSage Co.

Yet, despite higher inflationary prices and less discounting, merchandise is flying off the shelves. Notice that the percentage of products sold out in November and December 2021 is higher than last year. (Exhibit 3). Of all the categories, the specialty group saw the biggest percentage sold-out rates at 19%. This is also the sector with the highest average discount penetration and average discount.

Exhibit 3: Sold Out Rates by Sector 2019 – 2021

Source: StyleSage Co.

Please note, “sold out” includes items that went completely out of stock at any point during that period, even if they were then restocked – it is still counted as sold out.

Retailers are also selling more items at full price. During the month of November and December, we’ve seen much higher sold-out rates for full-price products compared to a year ago. For mall stores this December, it was 14% and last year it was 5%. For premium stores, it was 12% this December, and 7% last year (Exhibit 4).

Exhibit 4: Sold Out Rates for Full-Price Products 2020 – 2021

Source: StyleSage Co.

Refinitiv holiday sales forecast

The holiday season is in motion, and analysts polled by Refinitiv are becoming increasingly more bullish on the season, raising their same store sales (SSS) estimates for Q4 2021. Holiday sales are expected to see robust growth. The Refinitiv Same Store Sales Index is looking at a 7.5% growth estimate for Q4 2021, below the 10.4% SSS growth last year. Despite difficult comparisons from a year ago, the discounters, home furnishing, sporting goods and home improvement sectors are expected to post the strongest SSS growth at 8.1%, 6.7%, 4.2% and 3.9%, respectively.

Exhibit 5: Same Store Sales Sector Estimates – Q4 2021 vs. Q4 2020 Actual

Source: Refinitiv I/B/E/S

Favorite retailers

MarketPsych Indices from Refinitiv scour the news and other media, analyzing and extracting meaning. The data they provide can be used to drive profitable decisions.

Below is a ranked list displaying equities with the highest average sentiment scores YTD 2021, according to the MarketPsych Indices. This index provides a more organic view of which companies are connecting emotionally with their customer base.

The retailers in the list below show the most loved stores since the beginning of 2021. The results underline the importance of the value proposition to consumers. Rent the Runway and Etsy were in the top loved stocks since January, showing that shoppers love the deals there. Moreover, both these retailers provide shoppers with an interesting e-commerce marketplace to buy and sell merchandise.

Health and wellness have been a top priority for consumers during the pandemic. As a result, many are changing the way they shop by buying vintage as opposed to new items, which is better for the environment. This also helps move the industry from linear to a circular fashion economy.

Exhibit 6: The Most Loved Retailers: January 2021 – Dec. 21, 2021

Source: MarketPsych App in Eikon

Analysts polled by Refinitiv are also becoming more bullish on the Rent the Runway business model. Looking forward, the StarMine Analyst Revisions Model is highly predictive of both the direction of future revisions and price movement. Rent the Runway’s ARM score has been on the rise since the end of November 2021 when it scored a 50. Currently, the retailer scores a 94 out of a possible 100 suggesting that analysts are likely to revise earnings estimates upward.

Exhibit 7: Rent the Runway StarMine Analyst Revisions Model (ARM)

Source: Eikon

E-commerce sales growth

The pandemic underlined the importance of having a strong omnichannel strategy. Many consumers gravitated to online shopping. Still, the third quarter U.S. retail e-commerce sales report shows that consumers continue to return to physical stores. Q3 2021 e-commerce sales accounted for 13% of total U.S. retail sales, down slightly from 13.8% a year-ago.

The omnichannel strategy is critical, as it offers consumers a fast and efficient way of shopping by unifying all channels, including the physical store and online presence. Retailers also know that health and wellness are a top priority for shoppers. Accordingly, traditional mall stores, including American Eagle Outfitters, Bath & Body Works, Old Navy, Sephora, and Williams-Sonoma have been offering off-mall, open air store openings.

Still, the Refinitiv IFR e-commerce estimates suggests that holiday sales will help post a sales growth in Q4 2021. Moreover, e-commerce sales are expected to continue growing in 2022 to 14.9% of total U.S. retail sales in 2022.

Exhibit 8: E-commerce Sales as a Percentage of Total U.S. Retail Sales: 1999 – 2023

Source: Refinitiv IFR

2022 outlook

The Refinitiv U.S. Retail and Restaurant Q4 earnings index suggests retailers will have a healthy holiday season. The estimated earnings growth rate is 14.3% in Q4 2021 and is expected to show double-digit growth during 2022, despite difficult comparisons from a year ago.

Exhibit 9: The Refinitiv U.S. Retail and Restaurant Earnings and Revenue Growth Estimates

Source: Refinitiv I/B/E/S

Consumers are likely to trade down during inflationary times. Historically, they also trade down during economic recessions. Target already mentioned in its last earnings call that it has recorded strong market share gains on top of impressive growth in 2020. Accordingly, discounters are most likely to continue to benefit during this inflationary period. Notice how Walmart, Costco and Target are all expected to continue to see revenue grow into the next year.

Exhibit 10: Discounters’ Revenue in Consolidated USD Millions: 2018 Actual – 2023 Estimates

Source: Refinitiv I/B/E/S

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