How the pre-Christmas sales are affecting retail.
It’s a cliché that the Christmas sales seem to begin earlier every year, but this was particularly noticeable last year. Now that most of the stats from Q2 are in, let’s take a look at how Black Friday and Cyber Monday are affecting the rest of the retail year.
From the numbers we can find, there appears to be a trend for stronger Novembers and weaker Decembers, followed by even weaker Januaries – both in-store and online – and this seems to be fairly consistent across the US, the UK and Australia.
For example, last year was the biggest Black Friday ever in the US, with USD$6.2 billion spent online, a growth of 23.6% on 2017. (Complete official statistics covering both online and in-store are still yet to be released due to the US government shutdown).
Things were a bit different in the UK, with a 1.3% rise across November in total, but decreased year on year spending on Black Friday, before a fall of 0.9% throughout December – although experts are putting that down to Brexit uncertainty. Taking a broader view, sales were up overall across November and December, albeit by a subdued 0.3%.
So, all in all, stronger Novembers and weaker Decembers. Put this together with the slow but steady shift of sales moving online, and it can be summarised that, at least in the US, UK and Australia, people are spending more money earlier in the year, and increasingly online.
If this is simply a case of November stealing from December and online stealing from in-store, then this is hardly anything surprising. But is there something more that can be learned? Maybe.
Weaker Decembers mean more pressure on the post-Christmas and January sales, and greater temptation to bring the new season sales even further forward. If this pattern continues, we could soon be seeing heavily promoted non-stop sales events well into the new year. The temptation to chase targets with continual sales events is never ending.
The consequence of sales events becoming more and more frequent is customers becoming ever more accustomed to buying at a discount – so they instinctively learn not to buy anything (within reason, of course) unless it’s on sale. This creates a feedback loop where retailers rely upon discounts to drive sales because the numbers appear to support it, even though many of these customers were going to buy anyway. The opportunity to sell at a higher margin is lost.
Of course, this applies to both bricks-and-mortar retailers and online retailers, but it’s more dangerous for the former. Here’s why. It’s well known that customers who shop online are more likely to shop purely on price, and they expect things to almost always be cheaper online. So if a bricks-and-mortar store is having a big sale, it’s simply expected that the prices will be the same or even better online.
The huge overheads of running a bricks-and-mortar store make it impossible to compete on price alone, and therein lies the problem. Heavy discounting can only ever be a short-term fix for slow sales numbers. Long term, it’s a losing battle that will see more and more sales lost to online, and more retailers lost to the ether.
Does this mean real-world stores are destined to be relegated to history? Not quite.
In-store sales still far outweigh online sales the world over. In the US, online sales make up only 10% of total sales. In the UK it’s roughly 18%, and in Australia it’s 8.9%. Although these are all trending upwards, the numbers are still heavily stacked in favour of bricks-and-mortar stores. So instead of just discounting, what value can real-world stores offer customers that online simply cannot?
As we wrote in October last year, a more immersive and interactive shopping experience, salespeople with expertise, immediate receipt of goods, and the ability for customers to try before they buy are a good start.
The next time a new sales event emerges, bricks-and-mortar retailers should consider whether joining in the hype is really in their best interests. In the meantime, perhaps tax reform will help level the playing field? Time will tell.