Big Ideas for Holiday 2020
In less than six months we will be deep into the holidays. We will still be social distancing and avoiding large crowds. We will have had to rethink back-to-school, Halloween and Thanksgiving. All of these changes will have an impact on retail.
With the global nature of our supply chains, you’ve already made the majority of your purchases and commitments for the back half of 2020. You have forecasts, plans, budgets, etc. I appreciate that an optimist would now say “We’ll bounce back.” This may be true, but you’re not going to fully bounce back by the holidays this year. You’re still going to be dealing with inventory, labor, pricing and P&L challenges.
This kind of financial shock to consumers will take time to pass. This will be compounded by high unemployment, likely to be above 8% in the fourth quarter, low consumer confidence and stock markets that remain fragile. This will not be a spending year.
The one bright spot will be online. According to a Quantum Metrics study, online shopping increased 52% between the end of January and the end of February 2020. The study also uncovered an 8.8% increase in conversion rates for visitors to sites. If you’ve been in retail, these findings are not a surprise. The consumer has been moving online for the past 10 years. The implication, however, is that any remaining hesitation on the part of the consumer to shop online is gone. This outbreak will be a tipping point for stores.
Get Your Online Plan Together
Most retailers have the ability to sell online. We have been making this transition for years. For 2020, you’ve bought to sell across channels, you have call center teams to facilitate the sale and, in most cases, you have third-party agreements to step in as capacity exceeds your resources. The question now is, how big is this part of your business going to be this holiday season?
You need to solve for problems such as, “What would happen if 25%-40% of our store business moved online?” and “What role can our stores play in supporting greater online sales?” or “Do we have the resources to pick, pack and ship online sales that grow by 100%?”
Plan for Soft Store Comps
The National Retail Federation stated that 2019 holiday sales were up 4.1%. This was double the 2.1% reported for 2018. In short, we had a great holiday season last year as retailers. Consumer confidence was high and spending was strong. It seems unlikely either of these two things will be true this year.
As you built your budget for 2020, I expect you had positive comps from your store base as well as strong growth in your online business built into the numbers. It probably also had capital expenditures to build new stores or renovate an aggressive number of locations.
Along with ambitiously rethinking your online plans for the holidays, now is the time to reset your comparable sales expectations, budgets and capital plans. At least two of the months this holiday period will be soft comps. But which two depends on your merchandise segment. If you carry more consumables, November and December will be your softest months. If you carry more discretionary, including apparel and fashion, October and November will be your softest.
This doesn’t mean you won’t be able to sell product. You might be able to sell a great deal of product, but if you drive top line, you’ll most likely lose it in margin. A cautious consumer will bargain shop and hesitate.
This will be a holiday season that will test all of your retail experience. You’ll have soft store comps, lower margins, a surging online business and less traffic.
There is an expression, “never waste a crisis.” If you see the COVID-19 quarantine and store closures as a temporary issue, then I expect you will have a difficult 18-24 months ahead. This is a change to our ecosystem as retailers. Great leaders will recognize this and seize the opportunity.
Mike Matacunas is a 30-plus year veteran of the retail industry. He was most recently the chief administrative officer of Dollar Tree and Family Dollar where he led the acquisition and integration of Family Dollar. Prior, he was the CEO of The Parker Avery Group. He is currently CEO of Five Hill ([email protected]).