Now that the end of year reports for 2016 are done and the holiday shopping season results have been tabulated, the picture we’re getting of the retail industry landscape is uneven and difficult to climb except for the strongest players and the smaller, agile competitors.
In this post, you will find holiday retail sales results, a quick look at what consumers were buying, how retailers were trying to attract customers, consumer expectations about shipping and more. Oh, and stuff about Amazon – the looming giant that’s climbing all over everything and everyone to claim King of Retail 2016 and reign victorious over the holiday retail mountain.
Holiday shopping retail sales results
It was a rollercoaster of a holiday shopping season that ended on a high note. According to the National Retail Federation, Thanksgiving weekend spending fell 3.5 percent from 2015. However, holiday shoppers eventually shook off their reluctance to make purchases and boosted spending as the season wore on. Data from research firm Customer Growth Partners shows that last minute shopping swelled U.S. retail sales to $637 billion, a gain of 4.9 percent compared to the previous year.
Americans have been feeling flush with cash, creating the biggest increase for holiday spending since 2005. Low unemployment, reduced fuel prices and gains in disposable income helped make the season bright. Home values have also increased and the rising stock market has improved the value of consumers’ investments, giving them more confidence about the future. In fact, the Consumer Confidence Index hit a 13-year high in 2016.
The gains were uneven for retail, though. According to Commerce Department figures, purchases at brick and mortar department stores fell 7.2 percent, marking 23 months of year over year declines. Conversely, online sales grew by about 15 percent over the previous year. At the height of Cyber Week, peak e-commerce volume soared 39 percent higher than 2015 levels
What consumers bought
Sellers of consumer electronics, home-improvement goods, beauty products, and toys saw robust sales and minimal markdowns. Best Buy had a particularly successful season, blowing away expectations, growing online purchases by 31 percent and coming in second for online sales only to Amazon.
Athletic wear companies Adidas and Lululemon were winners, thanks to a differentiated product line that allowed them to avoid huge discounts. Health and beauty stores like Ulta also saw strong results.
Clothing, on the other hand, was a different story. JCPenney and Kohl’s reported lower than expected sales. Deep discounts of 40 percent or more were needed just to get people to look, let alone buy. Fast fashions are so prevalently available that consumers expect already low prices to be even lower for the holidays, making for fashion profit margins that are thinner and flimsier than cheap fabric.
Jockeying for consumer attention
Holiday season shoppers were delighted by promotional plays from retailers who were clamoring over each other for consumer attention. Walmart and Amazon both launched Black Friday deals in early November, weeks before Thanksgiving. Walmart generated some extra buzz when it challenged shoppers to “Dare to Compare” its prices with rivals including Target, Best Buy and even Amazon. Target heavily promoted an option to submit holiday shopping lists for quick pickup, right up until Christmas Eve.
Dynamic pricing was also a factor for this year’s retail shopping season. Dynamic pricing involves a strategy of setting flexible prices for products based on market demands, competitors’ prices, targeted profit margins and other factors. A report from 360pi shows that retailers were utilizing dynamic pricing throughout the holiday shopping season, in particular for sales days of Thanksgiving, Black Friday and Cyber Monday. Walmart, Target and Amazon it seemed were constantly undercutting each other while playing this holiday pricing game.
On a related note, much of the foot traffic at brick and mortar retailers was driven by sharp discounts and promotions. Though promotions are great for getting consumers in the door, they’re not terribly profitable for traditional stores. The steep discounts cut into overall profits for the holiday shopping season.
With that in mind, on thing for brick and mortar chains to seriously consider will be to offer consumers more reasons to step into their stores, without having to heavily slash prices to sacrifice profits. Stores that become a destination or that offer entertainment for customers are more likely to survive, such as Menard’s winter wonderland and holiday piano players, REI’s climbing walls and Target’s recent foray into foot pong.
Omnichannel experience for consumers
According to the most recent SPS survey conducted by Retail Systems Research (RSR), omnichannel is now the norm. Consumers feel that it’s just a given that they can buy any product, anytime, anywhere, and they want retailers to live up to that expectation. They also want their experiences to be seamless, whether the customer shops in a company’s store, on its website or via a mobile app.
As consumers gain more comfort and confidence with online retail, it’s expected they’ll use more these more varied channels more often. The number of online shoppers has grown by nearly 20 million to 224 million from 2015 to 2016. BI Intelligence, Business Insider’s premium research service, predicts that U.S. consumers spending online will grow to $632 billion in 2020.
These online customers also have rising expectations for how they can make e-commerce purchases. Though desktop shopping visits have been in the lead, smartphones and tablets continue to drive traffic for retail sites. On a record setting Cyber Monday, 65 percent of all purchases were made on desktop, while mobile accounted for 53 percent of all visits. It’s worth calling attention to the fact that Black Friday 2016 became the first day in retail history to top 1 billion dollars in mobile revenue – $1.2 billion at a 33 percent growth from 2015.
Because of the popularity of online shopping, checkout processes in the omnichannel world can really have an impact on sales. Many retailers have mastered the streamlined order process for desktop visits, but mobile is where many retailers fall short. A Newstore review of 112 retail brands revealed the average “mobile achievement grade” for the retail industry was a lackluster C-minus. Companies that provide a seamless process via mobile app, like Under Armour, Barneys New York and Zara, were considered “top of the class” with their performance. In other analyses, Walmart, Best Buy and eBay fared well with their mobile apps, too.
The easier you make it for consumers to browse, plan, and purchase items across a variety of devices, the more you stand to gain from the national shift to online shopping.
Consumer expectations for shipping
The online purchase is only part of the equation. Shipping has a big impact on whether or not the purchase is even made. Retailers that that have a variety of delivery options that are fast and cheap (or better yet, free) are gaining the upper hand.
With online shopping sales up, consumers’ expectations for shipping options are escalating. About 56 percent of consumers say shipping cost is still the most important factor they consider when placing an online home delivery order. Although many retailers are becoming more aware of the importance of shipping options, the shift is happening slowly from the consumer perspective.
This is particularly important for the holiday shopping season, when people want to spend more on gifts. Though about 46 percent of consumers say they are willing to pay for shipping for priority items, they largely prefer to shop with retailers who offer free shipping.
Buy online pick-up in-store (BOPIS) is another consideration. For the 2016 holiday shopping season, many retailers increased staffing to support omnichannel fulfillment options like BOPIS. Consumers like the convenience and the ability to avoid shipping costs.
However, most retailers who are utilizing BOPIS aren’t providing a good customer experience. Only 31.6 percent of consumers describe the process of collecting items ordered online in the store as “smooth,” according to according to the Great Omnichannel Expectations Shopper Survey from iVend Retail. Common suggestions for improvements include dedicated parking for BOPIS customers, a dedicated customer service line to process the orders and placing the BOPIS pickup location at the front of the store.
Amazon, the giant elephant in retail
And now, as promised, more on Amazon. Amazon had its most successful year ever and it’s best ever holiday shopping season to date.
Amazon accounted for a whopping 33.8 percent of all visits to retail websites during November and December, according to Hitwise. Walmart came in at a distant second with 6.69 percent, followed by Target at 3.25 percent and Best Buy at 2.93 percent. With Amazon looming at the top, just 10 retailers accounted for a little more than 55 percent of all holiday website traffic. That leaves less than 45 percent of holiday traffic for all the rest of the other e-retail sites.
With it’s two day delivery and in some cases same day delivery options, Amazon dominated last minute purchases. On the Monday before Christmas, 49.2 percent of all online sales in the United States were made on Amazon, according to data from Slice Intelligence.
Amazon is like the giant whale in a small pond, taking up space and disrupting retailers in its wake.
Amazon has gone to great strides to both identify consumers expectations, while simultaneously increasing those expectations. Amazon Prime offers two day free shipping, hitting on two consumer touch points mentioned earlier in this article of speed and low delivery costs. Going a step further, Amazon Prime Now even offers free two-hour delivery on specific items to Prime members in select areas, giving Amazon more leverage to clinch additional last minute shoppers.
Another reason why Amazon was a big winner is because over the course of a year, the site increased the products for sale by more than 14 percent to a whopping 419,576,537 SKUs, ever closer to having a half a billion different products. That SKU count doesn’t even include media, food, wine, gift cards and services. With it’s foray into groceries as well as a huge and rapidly growing selection of clothes and accessories (with plans to build a bunch of its own brands in-house to compete with the likes of J.C. Penney and Kohl’s), Amazon is pretty much everyone’s biggest competitor.
As the world’s largest online retailer further expands into new categories from groceries to fashion, Amazon is only going to get bigger. Every day, it seems like they’re announcing a new fulfillment center location. The company even recently said that it would create more than 100,000 full-time positions in the U.S. over the next 18 months. By 2020, it will likely be the largest company in the world.
How can retailers and e-tailers compete
It was one of retail’s best holiday shopping season in years, and most of the victory went to Amazon. Even the biggest retailer players who made the top ten were eating Amazon’s dust. How can you compete with that? Many hints have already been dropped through this article, including free shipping, faster shipping, smooth online experience and unique in-store experiences to name a few. Here are some additional suggestions to keep in mind:
Get automated. – Streamline fulfillment, operationalize processes, gain speed, reduce errors, decrease manual entry needs and more with automated Fulfillment EDI.
Get connected. – Tap into a retail network to gain visibility and easy access to trading partners, allowing you to source the products you need and quickly start creating value in days and weeks versus months and years.
Get strategic. – Grow your business by using data analytics to help you trim costs, increase efficiencies, identify opportunities, enhance customer experiences and more.
There’s also one other consideration: If you can’t beat Amazon, join Amazon. Many brands and retailers have taken advantage of Amazon Marketplace to sell their products. It’s just one more possibility for an omnichannel strategy to be where your customers are, please shoppers and gain sales.
Consumers are ruling the retail world in 2017, and more and more of them are choosing to wield their power online. Retailers, e-tailers, brands and others who want to survive the new retail landscape will have to adjust their tactics, because today’s consumer anticipates a fully streamlined omnichannel experience. Thanks to Amazon’s influence, those expectations will only grow in the future.
Whether it’s narrowing in on what consumers really expect, adapting to changing shopping behaviors or creating a unique customer experience, it’s time to get your mobile game perfected, make shipping a priority, improve your BOPIS strategy and more to beat out marketplaces in 2017.
Want more great insights? We recently surveyed hundreds of retailers, suppliers, distributors and logistics firms to understand their outlook and strategic focus for the coming year. Download the complimentary research report from RSR to see how your 2017 plans compare with your peers. And, if you’re looking to move quickly on your 2017 initiatives, contact SPS Commerce to help.