Macroeconomics Insight Center

After seeing dismal growth in the previous two holiday seasons, holiday 2017 gave most U.S. retailers a reason to be cheerful. While online once again led all channels, a big step up in store sales drove the improvement.

More shoppers had homegoods at the top of their lists, and a better store experience among some mass retailers attracted more holiday shoppers to stores. Still, it was another year of disappointing growth for some brick-and-mortar channels, indicating sharper strategic changes will be needed this year.

In our September forecast, we anticipated the holiday fourth quarter would post its strongest growth since 2014, but the level of growth exceeded our expectations. Surging wealth and confidence since the start of 2017 had been slow to translate into improved retail sales growth for most channels; confidence was high, but wage growth was weak. Progress on tax policy in November likely spurred shoppers to spend beyond their budgets and businesses to give fatter holiday bonuses, leading to the breakout quarter. Additionally, renewed food inflation contributed more to growth this holiday, particularly at supermarkets.

The channels expected to lead holiday sales also followed much of the playbook laid out in September. Shoppers spent heavily on big-ticket categories as indicted by surging growth in the home improvement, furniture, consumer electronics, and jewelry channels.

To check items off their lists, shoppers turned more to mass/value retailers than they had in recent years. While shoppers typically look to these retailers to save money, it likely wasn’t only the deals that enticed more shoppers—Walmart and Target both received higher marks for store experience than they did in the previous year when surveyed by ShopperScape® in September 2017. Target reported respectable comparable sales growth for the nine-week holiday period fed by store traffic and online. Walmart has not reported holiday or quarterly results, but has noted a pickup in traffic in recent quarters. Costco led the holiday among big-box mass stores with double-digit gains in November and December. Discounters additionally likely gained share of shoppers’ holiday spending based on the government’s measure for small-format value stores, which is available only for November (+7.5%).

Kohl’s and Nordstrom Rack, which widely outpaced most other softgoods retailers this holiday, may also be among the retailers that met shoppers’ increasing demands for value beyond price. Meanwhile, the underwhelming performance of most other apparel specialists, department stores, and sporting goods/media stores during what was an otherwise sharply improved holiday further highlights this new era of value. These retailers have struggled to offer, or at least communicate to shoppers, the relative convenience, quality, exclusivity, or experience that once differentiated them from other channels. The fallout has been immediate with Macy’s announcing strategic changes, and Bon-Ton Stores entering into forbearance agreements with its creditors.

Shoppers’ evolving value expectations of price plus quality and convenience has been heavily shaped by the rise of online, which once again outpaced all other channels this holiday. Amazon has yet to report sales results, but it did tout strong sales of its Alexa voice-enabled products, growth in Prime memberships, and the fact that the number of items it delivered through free one-day shipping doubled — all of which raise the bar for shopper convenience throughout retail.

Online’s overwhelming dominance last holiday was a loud call to action for retailers. The 2017 holiday suggests some retailers responded with a better store and omnichannel experience that did win back shoppers. But bolder strategies will be needed in the year ahead.

Unsure of what strategic path to take in 2018? A good starting point and introduction to how Kantar Consulting can help you is the aptly titled white paper Follow the Money: Finding Growth in Uncomfortable Places co-authored by my colleagues Bryan Gildenberg and J. Walker Smith.

For more on holiday and the new definition of value, KRiQ clients should see:

Doug Hermanson, Principal Economist

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