Holiday Central

4 reasons why empty malls on Black Friday aren't a bad omen for the holiday shopping season

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Key Points
  • Black Friday underscored holiday shoppers' dramatic shift towards buying gifts online during the coronavirus pandemic.
  • Retailers face steeper costs as they pack and ship more holiday purchases, but they had fewer markdowns and benefited from the popularity of curbside pickup.
  • Sonia Lapinsky, a managing director in the retail practice of AlixPartners, said one of the big questions is whether the online sales surge can offset the steep drop in store traffic: "All of the new ways of shopping are really eating into profitability," she said.
People walk through the King of Prussia mall, on Black Friday, in King of Prussia, Pennsylvania.
Sarah Silbiger | Reuters

Instead of rushing to malls, Black Friday shoppers largely headed to retailers' websites this year.

The deal-heavy holiday came in the middle of a sales season that began in October and will stretch beyond Christmas. Black Friday did not play its typical role of starting the holiday shopping frenzy, thanks to the coronavirus pandemic.

The health crisis has upended the cadence of holiday shopping, making it difficult to gauge how successful the season will be for retailers based on the size of Black Friday crowds. Shoppers have been checking off their gift lists since October. That led to a drop in demand over the holiday weekend.

Consumer spending fell 22.4% year over year during the period from Thanksgiving to Sunday, according to GlobalData, which uses consumer panels and data from retailers, mall owners and brands to forecast sales. Yet the numbers look much better when the broader timeframe is considered. Spending prior to the Black Friday weekend rose by 65.7% year over year.

Retailers and investors aren't sure how much consumers will continue to shop in the weeks ahead — or if they have already checked off most items on their list. Other factors, including the higher costs of shipping and lower levels of discounting also will be at play.

Sonia Lapinsky, a managing director in the retail practice of AlixPartners, said one of the big questions is whether the online sales surge can offset the steep drop in store traffic.

She said retailers have a challenging sales season ahead. As they pack and ship more holiday purchases, higher costs are cutting into profits. Mall-based stores, hammered by temporary sales closures early in the pandemic, have to dig out of a deep hole. As customers shop weeks of sales from the comfort of their couch, they may be more deliberate about purchases and less likely to snap up extra items or go on a panic-induced shopping spree.

AlixPartners forecast an increase of 1% to 2.6% in holiday sales in October, November and December, compared with the three-month period last year. But at the end of the day, Lapinsky said retailers will likely make less money.

"All of the new ways of shopping are really eating into profitability," she said.

Here are some takeaways from Black Friday 2020, and what it may tell us about holiday shoppers' habits, retailers' bottom lines, and the state of the industry:

Empty malls, busy websites

Black Friday has traditionally been associated with busy malls. Not this year. The event drove clicks to websites, rather than footsteps at shopping malls. Spending online soared nearly 22% to $9 billion, according to Adobe Analytics. The company analyzes website transactions from 80 of the top 100 U.S. online retailers.

U.S. consumers spent an average of $27.50 per person, or roughly $6.3 million per minute, shopping online on Black Friday, Adobe found.

It was the second largest online spending day in the history of the U.S., after last year's Cyber Monday, Adobe said. And the firm expects Cyber Monday 2020 to become the biggest online sales day in history, with spending between $10.8 billion and $12.7 billion. That'd translate to growth of 15% to 35% compared with last year.

GlobalData estimates total spending on Black Friday rose to $62.45 billion, an increase of 2.1% over 2019. Online spending made up $16.99 billion of that, a 48.3% increase year over year. Black Friday spending at stores was $45.46 billion, a decline of 8.6% year over year.

The number of shoppers at malls cratered 52.1% on Black Friday compared with last year, according to preliminary data from Sensormatic Solutions, a retail tracking firm. Overall, for the six key weeks of the holiday season this year, traffic in retail stores is expected to be down 22% to 25% year over year, the firm estimates.

A note from KeyBanc Capital Markets said the number of shoppers at stores was the least it's observed on Black Friday in more than 15 years.

"In fact, select stores we visited seemed even emptier than a pre-Covid-19 weekday," KeyBanc analyst Ed Yruma said. "Santa stayed away from stores."

Strong categories had pricing power

Shoppers used the day to stock up on lotions and perfumes, comfortable clothing and kitchen appliances like air fryers and coffee makers, either to gift to others or to keep to themselves.

The top categories and products largely fit into stay-at-home trends that retailers have seen throughout the pandemic, as people dress in athleisure while working remotely, cook more instead of dining out, and treat themselves to indulgences from candles to home spa products.

Activewear and outdoor retailers, such as Yeti and Ugg, resisted heavy promotions, Jefferies found, but their products still wound up in many shoppers' virtual baskets. Like the early months of the pandemic, slippers, sweats and camping gear have remained popular as people keep their attire cozy and casual and seek out safe ways to socialize, such as hiking with family and friends.

The winners on Black Friday 2020 included L Brands' Bath & Body Works, Dick's Sporting Goods, Lululemon and Williams Sonoma, according to a research note by Dana Telsey, the CEO and chief research officer of the Telsey Advisory Group.

Among the toys, Hot Wheels and Lego sets were the break-out hits and among electronics, Apple AirPods, Apple Watches, Amazon Echo and Samsung TVs topped the list, according to Adobe.

There were some breakout hits, too — like a jump in sales of chess sets, thanks to Netflix's hit show "The Queen's Gambit."

But just how much of these stay-at-home items will consumers still be buying in 2021? That's something retailers will have to gauge next.

Curbside options drove sales

Despite stores being emptier, curbside pickup paid off for some retailers, as it attracted customers and lowered shipping costs. Curbside and in-store pickup — sometimes called "buy online pickup in store" — increased 52% on Black Friday year over year, according to Adobe Analytics.

For some shoppers, that option became the selling point, according to Adobe. On Thanksgiving Day, for example, retailers that offered curbside pickup benefited from a 31% higher conversion rate of traffic to their websites.

Companies from Best Buy to Bed Bath & Beyond to Home Depot have added curbside pickup during the pandemic to make it easy for shoppers to get purchases without stepping inside of the store. For shoppers, the option is a safe and quick alternative to browsing store aisles and standing in a checkout line. For retailers, the option is a cheaper alternative to fulfilling online orders without the cost of delivering an item to a person's door.

Analysts and retailers expect that option to get even more popular in the weeks ahead, as last-minute shoppers worry about shipping delays or look to avoid high shipping fees.

Fewer markdowns

Shoppers who hit the malls or websites found deals — but the discounts weren't as deep or as dramatic as some may have anticipated. The majority of retailers kept their promotions on par with last year rather than slashing them more to inspire purchases, according to research by Jefferies. Of the approximately 50 retailers that the firm tracked, it found that 54% of their sales promotions were flat year over year and 22% were down from last year. Only 24% featured higher year-over-year promotions.

That was due, in large part, to retailers keeping a tighter check on inventories throughout the pandemic. It wasn't the case early on. In March and April, companies were faced with piles of merchandise that consumers weren't buying and had heavy markdowns in the summer.

They canceled and cut back on future orders, so they wouldn't risk a similar situation during the holidays.

Telsey said that in the branded apparel space, "promotions were unsurprisingly muted or nonexistent on Black Friday."

The true test might come in 2021, though, when retailers are faced with placing more orders, gauging consumer demand and strategizing on setting prices for the New Year.

"We do expect the increasingly important question will begin to focus on what happens next year," BMO Capital Markets analyst Simeon Siegel said in a research note. "Who maintains the discipline and learnings that less revenue can drive higher profits, versus who succumbs to the temptation of the incremental sale."

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