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November 24, 2023

U.S. Consumer Bargain Hunting Continues Into Cyber Monday As Average Discounts Rise

by Jharonne Martis.

Historically, Cyber Monday falls on the Monday after the Black Friday weekend. Cyber Monday discounts tend to be an extension of Black Friday deals for shoppers returning to the office after a holiday weekend, eyeing merchandise online. Like Black Friday this year, Cyber Monday deals are starting earlier in the hopes that shoppers will respond over the weekend.

This comes at the heels of third-quarter earnings releases where retailers are providing cautious guidance and are warning of a price-sensitive consumer. So, will the promotions be enough to entice shoppers to open their wallets?

LSEG holiday sales forecast

Spending for the entire holiday season is only set to rise 1.4% over last year’s sales levels. The LSEG U.S. Retail and Restaurant index is only expected to show a 1.4% revenue growth over last year’s Q4 levels. However, the estimated earnings growth rate is expected to grow 24.5%, due to lower cost pressures from a year ago.

Our metrics show that seven of 10 consumer-related industries have turned negative (Exhibit 1). Of the 205 retailers tracked by LSEG, the Broadline sector is headed for the highest earnings growth rate driven by Amazon’s strength. Still, the Hotels, Restaurant & Leisure sector has consistently done well and is headed for the second highest earnings growth rate in the fourth quarter, recording an 80.2% surge over last year’s level.

In fact, it has been the strongest-performing sector this year. These firms have been benefiting from the fact that consumers feel more comfortable traveling, staying at hotels and eating out after two years of staying at home due to the pandemic.

Exhibit 1: The LSEG Retail Earnings Growth Rate – Q4 2023


Source: LSEG I/B/E/S

Other winners in the sector include Amazon. The online giant is a favorite online shopping spot as it provides shoppers with convenience and discounts. Analysts polled by LSEG are already bullish on the company’s performance this quarter. The consensus for Amazon’s Q4 2023 EPS is $0.77. Moreover, the LSEG StarMine SmartEstimate data shows investors can expect positive surprises this quarter from Amazon. This quantitative tool has proven to be very valuable and accurate to help forecast financial expectations during earnings season.

The SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as the Predicted Surprise (PS%).

The Predicted Surprise for Amazon is 5.11%, suggesting the retailer is likely to beat the $0.77 earnings expectations and post a positive surprise. In fact, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Amazon to report EPS of $1.00, well above the mean.

As consumers remain value-oriented, they will continue to gravitate towards off-price retailers TJX and Ross Stores (Exhibit 2). Other holiday winners include Costco and Walmart. Meanwhile, the following retailers have a very strong loyal consumer base and are expected to see robust SSS: Abercrombie, Lululemon, and Ralph Lauren. Similarly, loyal shoppers at Free People (12.5% SSS) and Anthropologie (9.7% SSS) will boost sales at the parent company, Urban Outfitters.

Exhibit 2: The Strongest Same Store Sales Estimates for the Holiday Season – Q4 2023

Source: LSEG I/B/E/S

Cyber Monday discounts

Historically, Cyber Monday falls on the Monday after the Black Friday weekend. Cyber Monday discounts tend to be an extension of Black Friday deals for shoppers returning to the office after a holiday weekend, eyeing merchandise online. Like Black Friday this year, Cyber Monday deals are arriving earlier in the hopes that entice shoppers will respond.

The discount penetration (how much of the assortment is on sale) rose higher into the Cyber Monday weekend from a week ago. The discount penetration rose to 44% in November. LSEG discovered this in a collaboration with Centric Market Intelligence, formerly StyleSage, which analyzes retailers, brands, online trends and products across the globe.

For November, the discount penetration is 44%, considerably above the 2023 average of 34%, as retailers face a more price-cautious consumer.

Exhibit 3: U.S. Online Retail: Discount Penetration–2019 – Nov 2023


Source: Centric Market Intelligence formerly StyleSage Co.

For Cyber Monday, the average discount offered on this merchandise has slightly risen as well. The average percent discount in rose to 38.4%, slightly above the 2023 average of 37.6%. This means that retailers are ramping up the amount of merchandise on sale, but are trying to control the average discount, in-line with last year’s levels. Retailers seem to be luring  shoppers with more merchandise on sale but remain cautious with margins.

Exhibit 4: U.S. Online Retail: Average Discount –2019 – Nov 2023
Source: Centric Market Intelligence

Online U.S. mall stores

Consumers continue to gravitate towards experiences over discretionary spending. As a result, U.S. mall stores have been underperforming the restaurants and hotels sector. Accordingly, retailers are ramping up the promotions to attract shoppers, just in time for Cyber Monday weekend. Fifty percent of the online merchandise for U.S. mall stores is on sale this week, up from 45% from Black Friday. This discount penetration is also higher than this year it was during Cyber Monday last year (45%).

Exhibit 5: U.S. Mall Stores Discount Penetration: 2016 – 2023


Source: Centric Market Intelligence.

The current U.S. mall average percent discount rose to (19%) and higher from one year ago (16%). This means that this category has become more promotional than last year.

Exhibit 6: U.S. Mall Stores Average Discount: 2016 – 2023


Source: Centric Market Intelligence

Mid-tier department store sector

Department stores ramped up their promotions from a week ago, and consistently remain the most promotional-driven sector throughout the years.

For this Cyber Monday, the discount penetration rose from 69% last week to a whopping 74% this week, slightly below the 77% in 2022. This means that more than half of the inventories are on sale. That’s extremely high and the question is how long this sector can maintain these high discount levels, coming at the expense of margins.

Exhibit 7: Department Store Sector Discount Penetration: 2016 – 2023


Source: Centric Market Intelligence

The average discount is in-line with the high pre-pandemic levels. It stands at 26.0% in 2023, compared to 28% in 2019.

Exhibit 8: Department Store Sector Average Discount: 2016 – 2023


Source: Centric Market Intelligence.

Specialty sector

The specialty sector is the second-highest promotional sector. Last year, the discount penetration rose to 54% on Cyber Monday with an average discount of 22%. Since then, both averages have remained steady.

Exhibit 9: Specialty Sector Discount Penetration: 2016 – 2023


Source: Centric Market Intelligence

This Cyber Monday, 54% of the merchandise in this sector is on sale, with an average discount of 22%, which is still higher than pre-pandemic levels. At the category level, average discounts have gone up the most across a variety of apparel, including shorts, dresses, jumpsuits & rompers, followed by shirts and tops.

Exhibit 10: Specialty Sector Average Discount: 2016 – 2023


Source: Centric Market Intelligence

Premium sector

Luxury retailers don’t tend to discount often to maintain the brand exclusivity. Still, the amount of discounting among luxury retailers rose for Cyber Monday (24%) from a week ago (17%).

Exhibit 11: Premium Sector Discount Penetration: 2016 – 2023


Source: Centric Market Intelligence

The discount penetration level is presently in-line (24%) this year with last year’s (25%). The average discount is 10%, also the same as last year.

Exhibit 12: Premium Sector Average Discount: 2016 – 2023


Source: Centric Market Intelligence

This sector also usually discounts fewer items at lower average discounts than the apparel and accessories industry. The amount of merchandise rose from a week ago for Cyber Monday 2023. This year, 9% of the merchandise in this sector is on sale, with an average discount of 3%; this is still in line with the long-term average discount. This is lower than last year, when the discount penetration was 15% on Cyber Monday.

Exhibit 13: Beauty Sector Discount Penetration: 2016 – 2023


Source: Centric Market Intelligence

Cyber Monday summary

In summary, retailers ramped up their discounts earlier this year, and to the highest levels seen in 2023. As the days have progressed from an earlier Black Friday to Cyber Monday, retailers continue to increase both the amount of merchandise on sale and the average promotional discount. As a result, there might be more enticing sales as the Cyber Monday event starts.

The department stores are offering the most discounts, followed by the specialty sector. Within the latter category, apparel continues to be most discounted. On the flip side, the premium and beauty sectors are being more selective with their discount offerings.

Still, the Hotel, Restaurant and Leisure category is on track to see strong earnings this holiday season. This category still outperforms retail, suggesting that the consumer still prefers experiences over mall shopping – even during the holidays.

In terms of individual retail names, consumers are very price-sensitive and are bargain hunting. Online deals will help them do comparison shopping, especially during Cyber Monday. The biggest holiday favorites include off-price retailers TJX and Ross Stores, and discounters such as Costco and Walmart. Loyal shoppers will return to Abercrombie, and Lululemon. Likewise, repeat shoppers at Free People and Anthropologie will help sales at their parent Urban Outfitters.

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