The sleighs are ready and waiting for a Black Friday kickoff. But hold on a second! This is old world thinking. A retail expert, who will go unnamed, asked me, “Where have you been — on Mars? Pick any day of the year and you could call it Black Friday, Monday, Wednesday, whatever. Maybe this coming Friday will be blacker than all those other days you might have picked. It’s a misnomer anyway. The promotions have become so insanely deep we should probably call it Red Friday. And anyway, Thanksgiving is the new Friday.” This illogical logic is beginning to apply to Cyber Monday as well. In other words, promotional pricing has become the basis of competition, 24/7, 365 days a year.
Consumers who buy into this one-day Black Friday unreality prefer to live with the illusion. It’s exciting and it’s a tradition and it’s good-old American competitive capitalism at work. So the madness lives on.
And guess what? I’m actually full of cheery optimism about this Holiday season. Of course, for me, cheery optimism climbs to about a two, on a scale of one to ten. What gets me all the way to two, are seven optimistic predictors. What keeps me from rising above the two bar are six Grinch realities.
The Cheery News
- Hiring rebounded in October.
- Consumer confidence is up.
- Consumer spending is increasing.
- GDP Growth has been around 3 percent over the last two quarters.
- NRF and other notable experts predict about 4 percent Holiday growth.
- Stock market at historic “highs.”
- Anticipated corporate tax cuts (predicted to add jobs, lead to higher wages and greater spending).
The Grinch View
- While job growth is up, wages remain stagnant, actually dropping in October.
- While spending is increasing, savings are decreasing and credit card debt is mounting. And increased spending is for travel, leisure, entertainment, restaurants, health and well being, home and other services – not on the stuff that occupies most of the space in the mainstream retail sector.
- With about $2 trillion sitting on corporate “sidelines” over the past decade, why will a big tax cut all of a sudden motivate them to invest in growth: people, plants, equipment and higher wages?
- Could it be that at the end of the day, there is simply not enough demand for the overwhelming over-supply that just keeps piling up?
- So how profitable will the 4 percent sales growth be?
- Is the stock market in a “melt-up,” the last surge before a crash?
Department Store Woes
At risk of picking on department stores, I won’t. I will simply cite the common knowledge that this sector is struggling more than others. One of the major reasons for this condition is their primary dependence on apparel sales. Beginning in 2015, apparel sales have steadily declined continuing through most of this year (with the exception of a cheery uptick last quarter) but down again in September. So vibrant growth will be hard to come by for department stores. However, Jeff Gennette, CEO Macy’s, is upbeat saying, “The consumer is out there shopping in our categories. I am encouraged by that.”
The continuing double-digit growth of online sales across all sectors combined with millennial and Gen Z consumers opting for experiences over stuff will keep the pressure on all legacy and brick-and-mortar retailers. Retail Next predicts brick-and-mortar stores will grow a mere 2.1 percent over the holidays.
As reported in WWD, Craig Johnson, president of Customer Growth Partners, said home furnishings retailers, superstores and warehouse clubs, Costco, Walmart, online sites such as Wayfair, and food and beverage would be among the best performers for holiday. “With a growing ‘wealth effect’ due to stock market gains, luxury stores will enjoy a happy holiday after two years of coal in their silk stockings,” Johnson observed. However, department stores, sporting goods and toy stores will not perform as well. Traditional malls, where department stores are heavily concentrated, now account for barely 15 percent of total retail sales, down from 35 percent a generation ago, according to CGP. Johnson added, “Total department store sales will decline sharply, as the over-stored sector belatedly downsizes by hundreds of stores from last year.” He sees department stores dropping 3.9 percent, though that represents “a sequential improvement from last year, as the mall traffic woes ease, and as the stores ramp up their online sales. Apparel stores will struggle with only 1.8 percent growth, although that represents an acceleration from the dreadful 2017 year-to-date growth of only 0.5 percent.”
Amazon and the Wannabes
According to IHS Markit, online sales will continue to race ahead at double-digit rates. They project sales growth during this holiday period will be around 13.1 percent, up from 12.8 percent in 2016. And online share of total retail sales are estimated to reach 18.3 percent, up from a 16.8 percent share last year.
Of the total online sales growth, it’s estimated that Amazon will account for over 50 percent. Amazon’s current activity and success in the apparel business is 32 percent growth in Q3 2017 over the same quarter in 2016. Apparel and accessories accounted for 12 percent of Amazon’s sales growth in 2016.
So, even though they are yet to be considered a “go-to” destination for women’s apparel (only 6 percent in a study, when unprompted, named Amazon, while 35 percent named JC Penney and Macy’s), with the apparel category in a funk, and with department stores needing to sell a lot of it during the holidays, Amazon will be raining on Macy’s parade as well as the Black Friday goodies in the other department stores.
So speaking of the elephant in the room, Amazon is seeking to dominate the grocery and apparel sectors, already off to a good start by acquiring Whole Foods. If my prediction is correct, they will eventually acquire Kohl’s, for all the good strategic reasons outlined in my article, Kohl’s/Amazon – Win/Win?,which will buy them a dominant seat in the apparel category overnight, escaping the huge capital investment and many years to build out their own stores. Kohl’s 1150+ locations are solid reasons for an Amazon acquisition providing shopping, BOPIS or buy online, return to store and last mile delivery.
What Does an Elephant Look Like?
First of all, an elephant is bigger than a lot of animals put together. A picture is worth a thousand words, so look at this picture of the elephant called Amazon. Its market value bigger than all of the next eight biggest retailers combined.
And even though it’s conceivable that Amazon could acquire Walmart, that would probably be one step too far for the U.S. Antitrust Division. On the other hand, acquiring Kohl’s is eminently doable and strategically smart.
In the meantime, Walmart is blazing ahead on all fronts and I’m sticking by my prediction that they will become Amazon’s biggest nightmare.
As I close this note, I’ve actually gotten a little cheerier – I’m moving up to a three on the cheery scale. I think there will only be a few stockings stuffed with coal. Most will be stuffed with holiday-discounted surprises. I just hope there will be enough sales to end up in the black and not in the red.