January 5, 2007
A Vision of Christmas Future?
By Faye Brookman, special to GMDC
Christmas arrived at the nation’s stores, and when the numbers are tallied, food, drug and mass retailers hope Santa delivered about four percent to five percent gains over last year. That’s about on par with predictions from the National Retail Federation, which expects total sales to rise five percent to $457.5 billion, the lowest increase since 2002.
However, this Christmas was different as several interesting developments arose, which may herald some long-term changes.
One is that a substantial amount of business came after December 25. One reason is that consumers apparently took advantage of merchants’ deep discounting to move out holiday inventory. Holiday 2006 had started out robustly for merchants with customers flocking to stores in November. In reality, many of those consumers were grabbing early deals for themselves rather than gifts! December slowed down and retailers attributed that to factors such as warmer than usual weather that dampened holiday spirits as well as economic uncertainty. The next rush came after Christmas as merchants sliced prices.
A second interesting development is the massive expansion of gift cards to an $82 billion business this holiday season. Thirty-two percent of shoppers were expected to redeem them within the first month – another factor bolstering the post-Christmas spike. Many chains offered huge racks of, not only their own gift cards, but also third-party cards. CVS, for example, had a display organized by type of card offering everything from American Express to iTunes.
A third development was a major shift this Yule to low prices of hot electronics including flat screen TVs, portable DVD players, iPod accessories and digital cameras. Lewis Drugs sold a 37-inch flat screen TV priced under $800. ShopRite featured a TV for less than $300. Eckerd Drug sold car chargers for iPods for under $20.00. Retailers who never thought electronics fit into the mix were thrilled to see shoppers have no qualms about forking out hundreds of dollars to buy TVs with tomatoes.
Electronics supplanted traditional mass-market holiday gift ideas such as fragrances and cosmetics blockbusters. Many retailers lamented any “door busters” in the fragrance category and a lack of beauty items aimed at young shoppers.
Discussion Questions: Will this Holiday season set
the pattern for Christmas Future? Does
the seasonal merchandising rule of cutting prices as soon as the season is over
need to be revamped for Christmas? Does the major expansion of gift cards not
only mean this product is here to stay, but now needs to be merchandised even
more aggressively? Does the success of electronics validate the concept that
virtually anything can be sold in a food or drug store?
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Christmas is getting flatter. It’s taking longer (starts well before Thanksgiving and ends when the gift cards are spent in mid-January). It isn’t as profitable, since price/assortment comparisons are easy using the internet. Electronics are the adult toys and the children’s toys. Electronics margins aren’t robust since discounting is the rule, not the exception, and private label isn’t a major factor. And the fastest-growing age group is people over 60. To survive, more and more nonfood retailers will have to make money all year round, not just during Christmas.
Retailers also need to get the internet components of their businesses in order. All too often, their websites are run as separate business units which reduces customer loyalty when there are conflicting sales, everyday prices, returns policies, etc. And, those retailers that are very dependent on physical foot traffic are going to be rethinking their business models at some point, as doing everything, including shopping, is getting easier and easier online.
Consumers are getting smarter and smarter. Yes, this Christmas season is the harbinger of the future. There are a couple of reasons for this. 67% of all purchases are made with discretionary dollars. This means that if the price is not right, the consumer doesn’t need to make the buy. Additionally, NOBODY buys at retail pricing any longer. Take a look when the biggest buying surges occurred this holiday season. At the beginning of the season or Black Friday and starting on December 26. What do these periods have in common? Huge price discounts. Retailers have trained consumers to look for the super-sale. Today, being on sale isn’t enough. Products need extra savings. The last component to the Xmas shopping season is the huge increase in gift cards. These impersonal cards, purchased heavily in December, are being used when the big sales occur and thus the consumer is getting more for their dollar.
As a consumer, when I see huge discounts being offered, I think that this is the price that the item should be on a regular basis. I feel that if I don’t purchase at prices that are “deeply discounted” that I am overpaying. Retailers should perhaps start thinking like consumers and understand the psyche that they have created.
I will take credit for accurately predicting that the just-passed holiday season would see:
— record spending (wait for final figures!)
— no housing chill on consumer expenditures
— shopping starting early and continuing right up to, on, through, and after Christmas
— increased spending on both traditional and non-traditional toys and gifts, and in both luxury and bargain segments
— dramatic growth in online shopping, but increasing market share taken by multi-channel retailers, and away from pure-play e-tailers
— the large and growing influence of Internet shopping on in-store sales, including in-store pickup of items bought online
— the disproportionate influence of affluent and affluent-minded consumers
— the comeback of department stores
— the gift card trend
But what is most important in this and future holiday seasons is that multi-channel integration is the key to retail profits and growth. Consumers today and going forward want to be able to shop seamlessly among web sites, catalogs and stores. The retailers best positioned for growth are those that are making the efforts (and the investments) to integrate their in-store and online environments both for customer interface and back office operations.
The NRF has a history of forecasting holiday sales too optimistically. (Must be a bunch of ex-retailers!) Even this year’s “cautious” forecast of 5% turned out to be too high. This year really turned out to be consistent with the past few years’ history lessons, so don’t expect a sudden change next year:
1. Gift cards are growing their share of consumer dollars every year, along with online retailers, so measurements of store traffic between Black Friday and Christmas mean less — no matter how much everyone tries to interpret these numbers.
2. Weather matters: Regardless of how much “share of dollar” gets spent on electronics, gift cards, etc. it still takes some favorable conditions to drive apparel retailers’ sales of sweaters, outerwear, gloves, boots and the like. If these categories aren’t “top of mind” because it’s unseasonably warm, gift dollars are going to be spent elsewhere and “self-purchase” dollars may not be spent at all.
3. Trends drive sales: Most of the hot items the past few years have driven electronics sales rather than apparel sales. Until department and specialty stores discover and market “the next pink” or another key trend (like initials from a few years ago), they will continue to lose the “battle of the new” to hardlines retailers.
As a metric, same store sales, or comp(arative) sales, misses the mark during Christmas and throughout the year. It’s time for the retail world, the analysts, and the press to find another measure to compare retailers. Same store sales present a distorted picture for expansion-minded retailers, running thriving web-sites and offering gift cards. Since that’s just about every company in the business, the comp sales should recede in importance in the pantheon of retail metrics.
To measure the effectiveness of physical stores, year to year, retailers should measure sales across a metropolitan area. You open new stores to build broader base of customers. New stores are brighter, cleaner, more efficient to run, and more convenient for shoppers. Every new store will result in the loss of customers at existing stores as they struggle to replace the customers lost because of expansion. Comp stores, as a measure, penalizes existing stores, and ignores the very thing that retailers want.
A significant number of your customer are shopping online. That takes away from your local store’s cash register. Comp stores, as a measure, punish existing stores by ignoring the fasting growing part of your retail mix. Measure your business regionally from all channels.
Lots of your December dollars are being systematically shifted to the first quarter through the sale of Christmas gift cards. That’s what you want. You have both the customer’s money and your inventory. Again, comp stores punishes existing stores with its archaic measure of sales. Measure the health of your business better by showing the amount of unredeemed gift cards.
It’s time for industry to measure itself more holistically and to track itself against its own initiatives. Sames store sales just doesn’t do that.
The vision of Christmas future could well be one of the most important issues that has appeared on RetailWire in recent months. It highlights the major consumer-driven changes that allow an aggressive and flexible retailer to grab greater share of what might be called “contemporary spending,” i.e., spending that is driven by the interplay between new lifestyle issues and the options opened up as a result of technology. Example of this include:
>Many shoppers want to save on their purchase and use all sorts of ways to spot and take advantage of major discounts — be they on either end of the season. The lesson: even with all of the focus on EDLP, discounts still generate big increase in spending.
>Who has the time to find a great gift for everyone on the list? So gift cards are what to buy. The lesson: Convenience and technology have separated the purchase (of the card) from the buying of the product (with the card). This separation changes a lot of things.
>Retailers maintain their mindset on what a store should sell but shoppers know a good thing when they see it and are open to buy wherever they are if they have a need.
The lesson for food retailers — which was well documented in the GMDC Season Best Practices Study — is that price points of $500 or more are okay on the right products.
Let’s all keep our eyes open for more of these new market dynamics that are remaking the world of retailing.
As Bernie Slome said, consumers are trained to look for the big discounts whether they occur before Thanksgiving, on Black Friday, the week before Christmas, the week after Christmas, or in early January. In addition, consumers buying electronics have a different strategy. First, those “toys” are generally big ticket items. Second, consumers do a lot of searching online to determine the best price which is not always the local sale price. Third, measurement of sales needs to incorporate online and in store sales which is a problem. Someone may choose to buy an item online rather than got to a store — does the company get credited for the sale? Does the consumer’s closest retail outlet get credited for the sale when calculating year on year sales?
Whatever promotion a retailer plans to run it is important to take the general consumer training into account because that’s the perception consumers begin with. Determining where that consumer’s sales count is also a measurement issue that needs to be reconciled. Again technology is dictating a change in business processes and sophisticated are searching for information and shopping differently.
I agree that Christmas is and will continue to change – and THANK YOU Bill Robinson for your insight. WE MUST measure sales differently — include gift cards, etc. And let’s not continue with on-going archaic standards and the retailer potentially can UTILIZE the “turning in” of gift cards better — MAKE that an opportunity as well. Multi channel integration also is SO important and is going to continue to grow in importance and benefit retailers as on-line purchasing continues to grow. This may be more true for some people and demographics.
Also the general public is so savvy now — like it was said — no one pays retail for anything any longer. This however does not mean that there is not opportunity — it simply means that opportunity is continuing to change and organisations must be able to adapt and change and recognise the potential that is placed before them.
So although the traditional “Christmas” sales figures are now spread out to points that would not have been believable years ago, and although it seems that end of year sales are only available through driving price, new opportunities and different opportunities do present themselves. These need to be thought about, recognised, and understood — so that they can be utilized for their optimum effects. I am sorry that is SO broad but we are talking in SUCH broad terms over so many different channels of distribution and types of materials.
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Christmas is getting flatter. It’s taking longer (starts well before Thanksgiving and ends when the gift cards are spent in mid-January). It isn’t as profitable, since price/assortment comparisons are easy using the internet. Electronics are the adult toys and the children’s toys. Electronics margins aren’t robust since discounting is the rule, not the exception, and private label isn’t a major factor. And the fastest-growing age group is people over 60. To survive, more and more nonfood retailers will have to make money all year round, not just during Christmas.
Retailers also need to get the internet components of their businesses in order. All too often, their websites are run as separate business units which reduces customer loyalty when there are conflicting sales, everyday prices, returns policies, etc. And, those retailers that are very dependent on physical foot traffic are going to be rethinking their business models at some point, as doing everything, including shopping, is getting easier and easier online.
Consumers are getting smarter and smarter. Yes, this Christmas season is the harbinger of the future. There are a couple of reasons for this. 67% of all purchases are made with discretionary dollars. This means that if the price is not right, the consumer doesn’t need to make the buy. Additionally, NOBODY buys at retail pricing any longer. Take a look when the biggest buying surges occurred this holiday season. At the beginning of the season or Black Friday and starting on December 26. What do these periods have in common? Huge price discounts. Retailers have trained consumers to look for the super-sale. Today, being on sale isn’t enough. Products need extra savings. The last component to the Xmas shopping season is the huge increase in gift cards. These impersonal cards, purchased heavily in December, are being used when the big sales occur and thus the consumer is getting more for their dollar.
As a consumer, when I see huge discounts being offered, I think that this is the price that the item should be on a regular basis. I feel that if I don’t purchase at prices that are “deeply discounted” that I am overpaying. Retailers should perhaps start thinking like consumers and understand the psyche that they have created.
I will take credit for accurately predicting that the just-passed holiday season would see:
— record spending (wait for final figures!)
— no housing chill on consumer expenditures
— shopping starting early and continuing right up to, on, through, and after Christmas
— increased spending on both traditional and non-traditional toys and gifts, and in both luxury and bargain segments
— dramatic growth in online shopping, but increasing market share taken by multi-channel retailers, and away from pure-play e-tailers
— the large and growing influence of Internet shopping on in-store sales, including in-store pickup of items bought online
— the disproportionate influence of affluent and affluent-minded consumers
— the comeback of department stores
— the gift card trend
But what is most important in this and future holiday seasons is that multi-channel integration is the key to retail profits and growth. Consumers today and going forward want to be able to shop seamlessly among web sites, catalogs and stores. The retailers best positioned for growth are those that are making the efforts (and the investments) to integrate their in-store and online environments both for customer interface and back office operations.
The NRF has a history of forecasting holiday sales too optimistically. (Must be a bunch of ex-retailers!) Even this year’s “cautious” forecast of 5% turned out to be too high. This year really turned out to be consistent with the past few years’ history lessons, so don’t expect a sudden change next year:
1. Gift cards are growing their share of consumer dollars every year, along with online retailers, so measurements of store traffic between Black Friday and Christmas mean less — no matter how much everyone tries to interpret these numbers.
2. Weather matters: Regardless of how much “share of dollar” gets spent on electronics, gift cards, etc. it still takes some favorable conditions to drive apparel retailers’ sales of sweaters, outerwear, gloves, boots and the like. If these categories aren’t “top of mind” because it’s unseasonably warm, gift dollars are going to be spent elsewhere and “self-purchase” dollars may not be spent at all.
3. Trends drive sales: Most of the hot items the past few years have driven electronics sales rather than apparel sales. Until department and specialty stores discover and market “the next pink” or another key trend (like initials from a few years ago), they will continue to lose the “battle of the new” to hardlines retailers.
As a metric, same store sales, or comp(arative) sales, misses the mark during Christmas and throughout the year. It’s time for the retail world, the analysts, and the press to find another measure to compare retailers. Same store sales present a distorted picture for expansion-minded retailers, running thriving web-sites and offering gift cards. Since that’s just about every company in the business, the comp sales should recede in importance in the pantheon of retail metrics.
To measure the effectiveness of physical stores, year to year, retailers should measure sales across a metropolitan area. You open new stores to build broader base of customers. New stores are brighter, cleaner, more efficient to run, and more convenient for shoppers. Every new store will result in the loss of customers at existing stores as they struggle to replace the customers lost because of expansion. Comp stores, as a measure, penalizes existing stores, and ignores the very thing that retailers want.
A significant number of your customer are shopping online. That takes away from your local store’s cash register. Comp stores, as a measure, punish existing stores by ignoring the fasting growing part of your retail mix. Measure your business regionally from all channels.
Lots of your December dollars are being systematically shifted to the first quarter through the sale of Christmas gift cards. That’s what you want. You have both the customer’s money and your inventory. Again, comp stores punishes existing stores with its archaic measure of sales. Measure the health of your business better by showing the amount of unredeemed gift cards.
It’s time for industry to measure itself more holistically and to track itself against its own initiatives. Sames store sales just doesn’t do that.
The vision of Christmas future could well be one of the most important issues that has appeared on RetailWire in recent months. It highlights the major consumer-driven changes that allow an aggressive and flexible retailer to grab greater share of what might be called “contemporary spending,” i.e., spending that is driven by the interplay between new lifestyle issues and the options opened up as a result of technology. Example of this include:
>Many shoppers want to save on their purchase and use all sorts of ways to spot and take advantage of major discounts — be they on either end of the season. The lesson: even with all of the focus on EDLP, discounts still generate big increase in spending.
>Who has the time to find a great gift for everyone on the list? So gift cards are what to buy. The lesson: Convenience and technology have separated the purchase (of the card) from the buying of the product (with the card). This separation changes a lot of things.
>Retailers maintain their mindset on what a store should sell but shoppers know a good thing when they see it and are open to buy wherever they are if they have a need.
The lesson for food retailers — which was well documented in the GMDC Season Best Practices Study — is that price points of $500 or more are okay on the right products.
Let’s all keep our eyes open for more of these new market dynamics that are remaking the world of retailing.
As Bernie Slome said, consumers are trained to look for the big discounts whether they occur before Thanksgiving, on Black Friday, the week before Christmas, the week after Christmas, or in early January. In addition, consumers buying electronics have a different strategy. First, those “toys” are generally big ticket items. Second, consumers do a lot of searching online to determine the best price which is not always the local sale price. Third, measurement of sales needs to incorporate online and in store sales which is a problem. Someone may choose to buy an item online rather than got to a store — does the company get credited for the sale? Does the consumer’s closest retail outlet get credited for the sale when calculating year on year sales?
Whatever promotion a retailer plans to run it is important to take the general consumer training into account because that’s the perception consumers begin with. Determining where that consumer’s sales count is also a measurement issue that needs to be reconciled. Again technology is dictating a change in business processes and sophisticated are searching for information and shopping differently.
I agree that Christmas is and will continue to change – and THANK YOU Bill Robinson for your insight. WE MUST measure sales differently — include gift cards, etc. And let’s not continue with on-going archaic standards and the retailer potentially can UTILIZE the “turning in” of gift cards better — MAKE that an opportunity as well. Multi channel integration also is SO important and is going to continue to grow in importance and benefit retailers as on-line purchasing continues to grow. This may be more true for some people and demographics.
Also the general public is so savvy now — like it was said — no one pays retail for anything any longer. This however does not mean that there is not opportunity — it simply means that opportunity is continuing to change and organisations must be able to adapt and change and recognise the potential that is placed before them.
So although the traditional “Christmas” sales figures are now spread out to points that would not have been believable years ago, and although it seems that end of year sales are only available through driving price, new opportunities and different opportunities do present themselves. These need to be thought about, recognised, and understood — so that they can be utilized for their optimum effects. I am sorry that is SO broad but we are talking in SUCH broad terms over so many different channels of distribution and types of materials.