Source: nrf.com, January 2021
2020 was an extraordinary year that defied many conventions. While the retail industry was in shutdown mode for many months, at a macro level, it was a banner year for the industry overall. The month-over-month changes the media likes to focus on have been deceiving over the course of the year and should largely be ignored. Those numbers apply seasonal factors that make them very hard to trust given the highly unusual circumstances.
Holiday sales increased by 8.3 percent on a year-over-year basis. We haven’t seen an increase of that magnitude in the last 20 years: It’s more than double the 3.5 percent average holiday increase we’ve seen over the last five years.
On an annual basis, sales were up 6.8 percent — also higher than anything we’ve seen in the last 20 years. On a nominal basis, consumers spent a quarter of a trillion dollars more on retail this year than last.
So, how do we make sense of these numbers? Here are a few factors that had a big impact.
Some segments excelled while others struggled
When we look at the overall holiday sales numbers, NRF uses Census data that excludes sectors like automobiles and gas. What’s left over is what we like to think of as “core retail,” dominated by major segments including grocery, general merchandise (which includes super stores), building materials and garden equipment, health and personal care stores and non-store retailers (think ecommerce)
These sectors accounted for 83 percent of retail sales in 2020. Many of the stores in these categories were deemed to be “essential retail” at the outset of the pandemic and were able to keep their doors open. In effect, the shutdown orders created a tale of two retails — the haves and the have-nots. While essential retailers had many challenges to face, those forced to close their doors were put in extreme circumstances.
It’s important to remember that despite the growth in ecommerce, retail in the United States remains a store-based activity. Over 80 percent of retail sales still occur in stores, so the shutdown had a profound effect on those businesses that were dependent on stores for revenue. While the overall numbers for the industry look great, it’s important to recognize that retail is an incredibly broad and diverse industry, and not all segments flourished this year.
Retailers adapted quickly to meet new customer needs
During the first few months of the pandemic, we saw a rapid increase in digital commerce. Many retailers ramped up their fulfillment capabilities, rolled out or enhanced their buy online, pick up in store and curbside offerings, and made their stores safe for consumers to shop in.
This is a story of an industry that faced supreme challenges to its business model and was able to adapt on the fly. Not nearly enough attention has been paid to how successfully the industry pivoted quickly and made it all seem like business as usual, despite an incredible level of shifting consumer demand and the logistical challenges of getting goods from manufacturers onto store shelves.
Consumer spending on goods recovered
While retail struggled in the early months of the pandemic, strong consumer spending on goods more than offset that early weakness. Much of the money consumers saved — by not going on holidays, not spending on travel and entertainment, and not commuting — appears to have been repurposed toward both savings and consumption.
We all spent much more time around the house, either working or learning from home. That meant not only equipping home offices and home schoolrooms, but also taking care of the many home improvement projects that had been put off over the years. As we cooked and cleaned more at home, replacement appliances were needed. Fortunately, stimulus checks and savings padded by our stay-at-home lives offset these expenses for many consumers.
Like the rest of the country, the retail industry has a way to go before any semblance of normalcy returns. Though employment levels have been improving, retail unemployment is still higher than before the pandemic. Foot traffic is also still well below pre-pandemic levels. As we transition into a new year, many uncertainties remain for the industry.
The challenge for retail is understanding what the new normal will look like as we transition back to normal. Will shopping look more like it does today or more like it was in 2019? Regardless of how it shakes out, history shows us that as long as consumers keep spending, retailers will be there to serve their customers, however they choose to shop.
