Retailers could be in trouble if they don't give shoppers enough newness this Black Friday
- A strong macroeconomic backdrop, with low unemployment and wage growth, has given the retail industry's lead trade group enough confidence to predict holiday sales will grow 3.8% to 4.2% this year, better than a 2.1% increase in 2018.
- But shoppers might end up spending more money on other things or experiences not found in stores.
- That could end up hurting some retailers.
Shoppers will spend lots of money this holiday season, but are retailers giving them something to spend on? That's the million-dollar question.
A strong macroeconomic backdrop, with low unemployment and wage growth, has given the retail industry's lead trade group enough confidence to predict holiday sales will grow 3.8% to 4.2% this year, better than a 2.1% increase in 2018. The National Retail Federation says consumers will spend an average of $1,047.83 this holiday season, up 4% from a year ago.
But a younger generation of consumers is devoting more money during the holidays toward experiences, like vacations and concerts. And the secondhand apparel market is booming, as more consumers are conscious about sustainability when they shop.
Meantime, a scan through retailers' holiday ads shows hot deals on the Instant Pot, Fitbits and "cozy" couture. Sound familiar? These were all big items last year. There's not a lot of newness in stores. And that could end up meaning bad news for some companies.
"Retailers are in the business of selling things," Joel Rampoldt, a managing director in the retail practice at AlixPartners, told CNBC in an interview. "And they still need to do that."
But, he went on, this season "I don't see one big must-have that's going to drive a lot of traffic."
In 2017, the Instant Pot was one of the most anticipated gifts of the holiday season and ended up selling out on some retailer's websites, including at Kohl's.
Two years later, Kohl's is still anticipating the cooking gadget to be a hot commodity and is pushing deals on it.
"The Instant Pot continues to be a great item," CEO Michelle Gass told CNBC in a recent phone interview. She said other top sellers, with strong promotions, are expected to be Fitbit devices and Ninja Kitchen appliances like air fryers and food processors.
The Fitbit is expected to be one of the most discounted items this holiday season, by retailers across the board, according to Julie Ramhold, a consumer analyst with DealNews.com, who has been tracking promotional activity. "I think Kohl's will have every Fitbit model on sale that exists for Black Friday."
However, if multiple stores have an item, like a Fitbit, a retailer will try to win the sale by winning on price. And winning by offering a lower price also means sacrificing profits.
Retailers "have to have something really special to drive traffic," Rampoldt said. "But the worst way for them to accomplish that is to have the same thing that everyone else has, but at a lower cost."
To be sure, Kohl's, J.C. Penney and others have invested in refreshed private labels — like Kohl's new Scott Living home brand with HGTV's "Property Brothers" — that shoppers won't be able to find anywhere else. Macy's and Nordstrom have said they've invested in having plenty of gift options this year. But it remains to be seen if those efforts will be enough to win extra holiday sales.
'Cozy' is still here
When it comes to fashion, retailers are pushing casual looks that are comfortable this holiday season, according to NPD Group analyst Beth Goldstein.
Companies appear to still be milking the "cozy" phenomenon that exploded at places like Gap, Bed Bath & Beyond and Target last year, she said. "We are in the second year. ... Maybe there is one more year of it."
"I think ... on the whole there hasn't been enough new excitement," she said. "I think everybody is still throwing a lot of spaghetti at the wall."
Kohl's on Black Friday will have "supersoft" plush throws on sale for $7.64 and pajama sets up to 60% off. Bed Bath & Beyond has soft Ugg bedding up to 40% off. Target has hoards of weighted blankets on sale. Gap's website is offering "50% off everything, everywhere," including on "cozy" sweaters and scarves.
Retailers need to figure out, "how do you go to the next level," Goldstein said.
Gift cards, for the 13th year in a row, remain the most popular item on holiday wish lists, according to NRF's survey of 7,782 adult consumers from Oct. 1 to Oct. 10. Clothing and accessories are second, at 52%, NRF said.
A separate survey by consulting firm Deloitte found that, out of the $1,496 it expects the average household in the U.S. to spend this holiday season, $596 will be on experiences, including on eating out, staying at hotels, transportation and flights.