The coronavirus pandemic has altered nearly every aspect of consumers' lives — canceling in-person events, halting travel and moving everyday activities, like work and school, into the home. This, in turn, affected not only how shoppers spent their money, but what they spent it on.
Products in the home and office categories flew off the shelves early on in the pandemic as consumers adjusted to their new normals of working remotely and spent almost all of their time at home. Most other nonessential retail categories, however, didn't fare as well. Apparel retailers have faced steep losses in recent months as the need to purchase new clothes for work and going out dwindled.
It set the scene for a particularly unusual holiday season, but consumers nonetheless have continued to spend.
"The holidays — Christmas, Hanukkah — they're about love and family and friends," said Phil Rist, executive vice president of strategic initiatives at Prosper Insights & Analytics. "Especially in an environment when you have people worried about illnesses or being forced to not visit their family, these are times when consumers are going to try to make their Christmas or Hanukkah even more special. Now they're doing more of the execution of it online, but we're seeing all signs for a very strong season."
A continuation of pandemic-induced spending behavior
Black Friday — generally one of the biggest shopping days of the year, and when many begin buying their holiday gifts — looked a little different this year. E-commerce dominated as consumers remain wary about shopping in physical stores. Digital sales on Black Friday ticked up 21.6% from last year to reach $9 billion, according to Adobe Analytics, while Salesforce puts that U.S. figure at $12.8 billion, representing year-over-year growth of 23%.
The number of shoppers partaking in Black Friday weekend sales, as well as how much consumers spent were down year over year, according to a survey from the National Retail Federation and Prosper Insights & Analytics. But analysts believe that's largely because consumers began making holiday purchases earlier in the season.
Retailers, anxious about shipping delays as a result of more consumers shopping online for gifts this year, launched sales events earlier than ever in hopes of spreading out demand.
The holiday season unofficially kicked off when Amazon hosted Prime Day on Oct. 13 to 14, prompting others like Walmart, Target and Best Buy to launch sales events of their own during that period.
Retail giants weren't the only ones attempting to pull shopping demand earlier into the season. Other retailers used "Black Friday" language in the promotional emails they sent to customers the weekend prior to Black Friday, according to Rist. "They started creating new phrases to communicate to the customer that things you would have normally had to wait for in prior years until after Thanksgiving, we're letting you do those now."
But what consumers actually bought during the holiday season doesn't look a whole lot different than what sold well at the start of the pandemic. "Reason being the consumer is now living in what we call a 'here and now' lifestyle," The NPD Group's Chief Retail Analyst Marshal Cohen told Retail Dive. "They're buying what they need here and now as opposed to planning for the future the way they would have bought before."
Before the pandemic, the trend to gift experiences over material goods has gained steam — whether for the holiday season or for wedding registries, prompting the formation of businesses like Honeyfund.
But the pandemic halted virtually all nonessential travel overnight and consumers have begun favoring material goods again. In fact, non-retail services — traveling to visit family for the holidays, dining out or going to bars, and going on vacation — were among the categories consumers were most likely to cut spending on, according to a Nov. 16 Coresight Research report. However, books, video games, home goods and grooming products were among the categories consumers were least likely to cut spending on this season.
Year-over-year sales growth, however, in many of the categories that performed relatively well this season has been muted.
Office supplies and sporting goods were the only categories The NPD Group tracks that showed year-over-year growth over Black Friday, according to Cohen. Every other category declined from last year's figures. Similarly, a recent report from 1010data found that electronics and sporting goods were among the top performing categories in October in terms of year-over-year sales growth, growing 57% and 25%, respectively.
But compared to the other categories, Cohen said that "toys, limited categories within apparel — things like slippers and sleepwear — small domestic appliances did well, comparatively."
Looking at the overall holiday season, many of the categories that performed well since the pandemic took hold in the U.S. continued to perform well into the fourth quarter.
"This year the holidays will be as much, if not more, about the time we spend at home than the time we spend with others."
Joe Derochowski
Home industry adviser at The NPD Group
Sales of home products grew 39% in October compared to last year, according to data emailed to Retail Dive from 1010data. Sales momentum is expected to continue, and even outpace 2019 results, through the holiday season, growing some 15% year over year during Q4, according to a Nov. 19 NPD report. Kitchen electrics, non-electric housewares, home environment appliances and personal care appliances are all projected to experience dollar growth from last year, per the report.
Caroline Jansen for Retail Dive; Source: The NPD Group
"This year the holidays will be as much, if not more, about the time we spend at home than the time we spend with others," Joe Derochowski, home industry adviser at NPD, said in a statement. "In preparation for the holidays, and colder weather across many regions of the country, consumers will be looking to give and get products that both facilitate and enhance their altered celebrations and increased in-home activities."
Toys, which are generally a big category during the holiday season, have been challenged with the lack of blockbuster movie releases this year. Certain products, like Barbie Dreamhouse and chess sets, have seen significant growth after the Netflix releases of "Barbie Dreamhouse Adventures" and "The Queen's Gambit," according to the NPD Group.
And one of the most popular categories this season has been video games as consumers were stuck looking for entertainment at home and the much-anticipated newer Xbox and PlayStation models were released. Four in five U.S. consumers reported having played a video game in the past six months, ticking up six points from last year, according to an NPD Group report released Nov. 30. But it isn't just teenagers playing in their parents' basements anymore: For consumers between the ages of 45 and 54, time spent gaming increased 59%, while dollar amount spent rose 76%. And for those between 55 and 64, time increased 48% and money spent was up 73%, per the report.
While NPD data indicates video games didn't perform as well over the Black Friday weekend, it's because the new console releases made them so popular prior to that weekend that they have "either been sold earlier or [retailers] are out of inventory," Cohen said.
Pet retailers, among the few beneficiaries of the pandemic, have continued to benefit through the fourth quarter. Chewy, coming out of record third quarter sales growth, had its biggest sales days in company history over Black Friday and Cyber Week, CEO Sumit Singh told analysts last week. More consumers are turning to their pets, or becoming first-time pet parents, as they seek out comfort during these times of uncertainty. The number of U.S. households with pets is expected to grow some 4% this year, according to Packaged Facts data.
"This is the year that we're going to see the most well-dressed pets of the 21st century," Cohen said. "We're seeing consumers caring for the pet and treating the pet like it's the most treasured member in the household."
Among the retailers benefiting the most during Cyber Week were those offering in-store and drive-thru pickup services, as evidenced by their 29% increase in digital sales during the period, according to Salesforce data. By contrast, retailers that didn't offer these services grew digital sales in the period by 22%.
Mass merchants were also top of mind for consumers this holiday as Amazon, Walmart, Target and Costco all remained consumers' "first choice" retailers to shop over the Thanksgiving to Cyber Monday period, according to data emailed to Retail Dive from Earnest Research. Amazon gained share this year, while Walmart lost share.
Caroline Jansen for Retail Dive; Source: Earnest Research
Not everyone can be a winner, though
Even as consumers sought out the best deals, retailers weren't always delivering. Overall the discounts were less steep than years past, in part due to supply chain disruptions that have affected retailers for months.
Among those still discounting were mall-based retailers, particularly those selling apparel.
"When you're looking at some of these big-name mall retailers, where the whole site is 40% or 50% off, to me that's a little bit of a red flag," Katie Thomas, who leads the Kearney Consumer Institute, told Retail Dive in an interview. "You know that's a business that still might not be doing well: They're either sitting on a lot of inventory or they're really forced to discount heavily, whereas other retailers have been able to be a little bit more strategic with their sales, or at least have them for shorter spans of time."
Apparel has been one of the hardest hit categories since the pandemic hit as consumers no longer had the need to buy nicer clothing for their "new normal," and sought out comfort and casual styles more than ever. In April, clothing and accessories sales plunged 87% as most stores were forced shut, according to the Commerce Department's monthly retail numbers. But even as those stores have been open for months, spending in that category still remains down, some 12% in October, according to the Commerce Department.
Year-over-year comparisons use the most recent revisions to estimates as provided by the Department of Commerce.
Caroline Jansen for Retail Dive; Source: The Department of Commerce
"Footwear and accessories just absolutely got beaten up. Beauty has been seasonally challenged," Cohen said.
However, those categories — apparel and the makeup side of beauty, which has struggled in recent months — appear to have ticked back up slightly over the Black Friday weekend as consumer confidence is boosted from vaccine prospects and another potential stimulus package, according to Kearney's Thomas.
"I think there are industries that are challenged right now, like the fashion industry, but once we get out of this, what I call 'social recession' and we go to events, we start to go to work, we do things outside of the home again, you'll see some of these industries begin to recover," Cohen said. "Will they get to the levels where they were in 2019? Probably not right away, but over time."
We will, however, see "a big wave" of bankruptcies in the new year, Cohen predicts, because of two reasons: Business is down, but bankruptcy also doesn't have the same negative connotation as it had in the past, he said.
"It's not a blemish on their brand and reputation the way it used to be," Cohen said. "Bankruptcy isn't the dirty word that it used to be. Bankruptcy used to mean fails at their endeavor, it meant going out of business, it meant bad management. That's not the case anymore. Bankruptcy is just a means of correcting the challenge that this economic setback has created. So you will see companies that will take advantage of the opportunity."
And while the vaccine's progression and the potential of a second stimulus bill passing has boosted consumer confidence somewhat, Thomas doesn't anticipate consumers will seek out nicer apparel, to wear to work or to go out in, for some time. "Higher end apparel, it's going to still take a little bit of time to figure out exactly what the new working world will look like," she said, noting that products in the beauty category, like makeup, may bounce back sooner once the vaccine becomes widely available.
Clothing and footwear were the top categories consumers expected to buy this holiday season, according to a Coresight report released Nov. 4. "This appears to confirm that holiday gifting demand for apparel overall will prove more solid than the underlying demand seen in recent months, which has been depressed by reduced need for clothing for work or social events. For similar reasons, we could see a sequential uplift for beauty categories," Deborah Weinswig, CEO and founder of Coresight Research, said in the report.
But consumer behavior, in many cases, hasn't been permanently altered. As the vaccine is distributed and country borders begin to open back up, Thomas expects the urge to travel and experience things again will return.
The pandemic "really has made us appreciate that time with family and friends. There's pent-up demand for that experience — thinking about concerts, sports games, all of that stuff," Thomas said. "You'll absolutely see even more excitement around those kinds of experiences once we're allowed to have them again."
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What's selling in 2020's holiday season - Retail Dive
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