Across both brick-and-mortar and online brands, common factors we see in businesses that are close to tipping into failure include:
1) persistently high levels of debt and a lack of liquidity; 2) a lack of recognition by management teams that the core business model needs to be revamped;
3) a failure to recognize disruption in the marketplace (either driven by technology, a change in consumer behavior, or new competition); and
4) Inventory and supply chain miscalculation, leading to massive discounts/clearance.
On the other side of this mixed retail picture, there are a number of likely holiday winners. This includes both luxury brands and value-focused companies.
Luxury is set to do well for a multitude of reasons. With the stock market picking up from the doldrums of 2022 and fear of recession on the wane, wealthy people simply have more to spend. Higher-end brands also tend to be laser-focused on re-assessing, evolving and enhancing their customer service, through highly personalized service, loyalty programs, efficiency of deliveries, and memorable post-purchase experiences.
On the value side, both Walmart and Target are great examples of mass-market brands that are dialed into their customers’ desires and expectations. They also have embraced new AI and predictive technologies to connect with key audiences, have sophisticated supply chain visibility and are set to benefit from inflation-focused shoppers who want to make their money go further.
Early discounting and the evolution of holiday shopping
Part of the reason why it is unrealistic for struggling brands to hope for a holiday turnaround is the nature of holiday shopping itself and its evolution from an end-of-year frenzy to a year-round phenomenon. Key dates such as Black Friday and Cyber Monday continue to be massively hyped and receive outsized media attention, but they are increasingly less significant.
Discounts are happening sooner and lasting longer. In 2022 about 20% of consumers say they completed their holiday shopping in October. This year, we can expect to see a further acceleration of that trend, as consumers take advantage of pre-holiday sales and events earlier in the calendar year such as Amazon’s Prime Day.
Given these dynamics, retailers who are already struggling would be well-advised to get in early with discounts, booking a greater profit from sales in October versus the astronomical discounting that will be necessary to clear out excess inventory in December or January. By focusing on being aggressive with discounts and getting ahead of the market, they can make price a compelling proposition even if product assortment is not.
In conclusion, the forthcoming holiday season will be an important litmus test for retailers, separating those who have been able to adapt and thrive from those who are struggling to keep pace. The crucial decisions made in the coming months will not only determine their holiday success but also shape their future prospects in a retail environment that continues to evolve at an unprecedented pace.