After months of struggling against the odds to stay afloat, many retailers are anxiously preparing for the holiday season. What will consumers do?
Will they continue to tighten their belts amid all the financial uncertainty and health fears wrought by the pandemic? Or will they splurge on gifts, optimistic that the worst is over?
Deloitte’s 2020 holiday retail sales forecast predicts a tale of two holiday seasons, driven by a K-shaped economic recovery.
Holiday sales could play out in one of two possible scenarios, but either way, growth will be less than previous years. The results will be largely driven by how much wealthy consumers spend versus how much lower income folks save.
According to Deloitte’s annual forecast:
While overall US holiday retail sales will only grow between 1% and 1.5%,
e-commerce sales will jump 25% to 35% year-over-year.
Last year, overall holiday retail sales grew 4.1% and e-commerce sales grew 14.7%.
2020 holiday retail sales: More Scrooge, less Santa?
Retailers count on holiday sales for a big chunk of their annual sales, so there’s a lot at stake. This year, though, will be marked by “unparalleled uncertainty,” Deloitte said.
Here’s what the consulting firm sees as possibilities:
- Mounting financial and health anxieties continue to shake consumer confidence, making people less likely to spend on the holidays.
Unemployment insurance benefits expiring, continued school closures, increased joblessness, and the lack of an effective vaccine could all factor into people saving their money for necessities. In this scenario, holiday retail sales would either be flat or grow only 1% year over year. - A federal pandemic relief package with an unemployment insurance benefit supplement and effective vaccine boost consumer confidence.
This would fuel a healthier jump of 2.5% to 3.5% in holiday sales as people spend the money they’ve saved on travel and eating out this year on gifts. Deloitte melded both scenarios to come up with its formal holiday sales forecast of 1% and 1.5%.
“This year, one of two holiday scenarios will play out,” said Rod Sides, a vice chairman at Deloitte, and US retail and distribution sector leader. “Regardless of the scenario, however, the consumer’s focus on health, financial concerns and safety will result in a shift in the way they spend their holiday budget.”
This is where the K-shaped recovery that some economists are forecasting comes into play. Consumer confidence is more likely to grow among wealthier people who weren’t as impacted by the pandemic. Low-income folks working in industries that felt the brunt of COVID-19’s economic impact will remain cautious.
Brick-and-mortar treads carefully while e-commerce soars
The pandemic triggered massive growth in e-commerce as consumers shopped online from the safety of their homes. With the holidays, this trend will only grow.
Deloitte expects e-commerce to be a big winner in the 2020 holiday retail season,
generating between $182 billion and $196 billion.
“Consumers have told us again and again that they are looking for safety and are reluctant to go back into stores,” Sides told us.
Deloitte has been surveying consumers on a regular basis to assess their readiness to return to pre-pandemic life and go to stores, restaurants, and more. The latest study showed 56% of consumers feeling safe going to a store and 50% worried about their physical well-being.
Sides said brick-and-mortar retailers should focus on promoting safety and touch-less consumer experiences to draw consumers back to stores. He noted that an emphasis on digital advertising and offers, which he’s seen many retailers doing, is a smart move.
On the e-commerce side, retailers of course need to make sure their e-commerce operations are prepared for the holiday rush.
However, Sides said he’s less worried about retailers’ ability to handle online demand than the ability to get the goods delivered. It’s the last mile – which involves so many third parties – that has proven challenging in recent months.
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