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As the calendar turns to a new year, brands and retailers are reviewing holiday season results.
Data released this week from Adobe, GlobalData and Bank of America shows solid consumer activity despite a tough economy, but offers some cause for concern among retailers. In all, the busiest shopping season offers a snapshot of a consumer economy facing inflation, and returning to experiences.
Let’s take a look:
Discounts drive ecommerce growth
US online sales grew 3.5% year-over-year for the 2022 holiday season, netting $211.7 billion from Nov. 1-Dec. 31, according to Adobe Analytics data.
Coupled with Cyber Week growth of 4% year-over-year, 38 days surpassed $3 billion in spend, which was on par with 2021, Adobe found. Whether shopping for a gift or themselves, people were particularly keen on Apple Airpods, Roku devices, air fryers and vacuums.
In particular, toys saw a huge spike in demand, as online sales in the hot holiday category grew 206% compared to October, with consumers clicking “buy” for Legos, Hot Wheels and Paw Patrol. Video game sales grew 115%, as Nintendo Switch consoles and the game God of War proved popular.
Adobe also noted strong growth in watches (+108%), baby toys (+101%), gift cards, cosmetics (+90%) and outdoor grills (+86%). Gift cards also proved popular, netting 98% growth.
But beyond individual products, it was discounts that drove sales this year. Toys were propelled to the top category by peak discounts of 34%, well above the 19% reported in 2021. Meanwhile, electronics price breaks reached 25%, up from 8% the prior year. The elevated discounts were consistent, as apparel, appliances and furniture were all well above last year’s levels, as well.
Consumers were eager for deals amid inflation, and retailers who faced an inventory glut as a result of supply chain imbalance earlier in the year were all too happy to oblige.
“At a time when consumers were dealing with elevated prices in areas such as food, gas, and rent, holiday discounts were strong enough to sustain discretionary spending through the entire season,” said Vivek Pandya, lead analyst, Adobe Digital Insights. “The big deals drew in consumers and drove volume, helping retailers who were challenged with oversupply issues, particularly in categories such as apparel, electronics, and toys.”
Problems beyond the headlines
Inflation was a driving factor in spending across the economy over the holiday season.
For US retailers across channels, holiday-related spend grew 6.73% over 2021, according to an analysis from GlobalData Managing Director Neil Saunders. Growth was equally notable across Thanksgiving, Cyber Week and Christmas.
There’s reason to find cheer here. This growth arrived amid a tough economy, and is the second report to come in line with the National Retail Federation’s forecast 6-8% growth. Moreover, Saunders said, the results came in a year with tough comparisons, as 2021 saw massive 12.84% growth in holiday spend.
But look closer at those two years, and challenges start to appear. In 2021, consumers had stimulus checks in hand, they were buying goods instead of traveling and they could see light at the end of the pandemic lockdown tunnel.
2022 was different. Consumers were facing high inflation, and they were feeling glum. GlobalData found that sentiment was at a 10-year low to begin the holiday season, and 52.7% of consumers had negative views about the economy by the end.
In the results, the difference was on view in order volume numbers. While spending increased, volumes were down 1.37% for the holiday season, GlobalData found. Majorities of consumers surveyed by the firm set budgets to limit spending, and sought out discounts. Another 47% spent less per person. They also bought for fewer people – 4.1 this year, compared to 5.8 last year.
Those bigger-ticket splurges and matching sets for the whole family are where retailers bring in the holiday hauls that sustain them all year. Combine the shopper caution with rising operational costs, and it made profits more difficult to attain.
“The combination of more muted volume demand, lower margins, and higher costs of fulfillment point to an environment where bottom lines have come under increasing pressure,” Saunders wrote. “In short, the holiday headline numbers look solid, but the underlying numbers are a lot more problematic.”
Going back out
It’s also worth considering the shift following reopening from COVID restrictions played a role.
Bank of America reported that per-household spending on holiday items via its cards was down 3.4% year-over-year, even as overall retail sales rose 1.2% for the season. This year, spending at restaurants and entertainment appears to have overtaken the demand for furniture and clothing, economists wrote.
“The disproportionate weakness of spending on holiday items, compared to total card spending, is consistent with the ongoing rotation of consumer spending back to services,” BofA economists Aditya Bhave and Shruti Mishra. “Indeed, the share of services in total card spending has been outpacing 2021 levels for the last several months, and even caught up to 2019 levels in late December.”
To these economists, it suggests that the pandemic’s impacts on household choices and the economy “continue to slowly fade.” That only seems poised to continue in 2023, even as inflation and interest rates will keep creating their own challenges.
Ecommerce trends to watch
Here are a few more ecommerce trends from the season, as noted by Adobe:
Mobile shopping: On Christmas Day, 61% of online sales came through smartphones. The record was the high point in a holiday season when 47% of sales were made via mobile shopping. “For years, retailers have struggled to move the needle on mobile shopping, and the strong growth this season shows that investments made in improving the experience are beginning to pay off,” Adobe wrote.
Marketing: Paid search was the biggest driver of sales across marketing channels, as 29% of online sales were attributed to this approach. Other drivers were direct web visits (19%), organic search (17%), affiliates/partners (16%), and email (15%). Revenue attributable to social media was 3% of total sales, but has grown 24% in share year-over-year.
Buy Now, Pay Later: The installment payments for the ecommece generation figured to continue to be an option this year, as people sought to stretch dollars. Adobe’s final tally showed mixed results: Orders were up 4% over 2021, while revenue was down 2% as the method is being used for smaller carts.
Trending in Economy
Labor disputes on the West Coast could cause further disruption heading into peak season.
When the first half of 2023 is complete, imports are expected to dip 22% below last year.
That’s according to new data from the Global Port Tracker, which is compiled monthly by the National Retail Federation and Hackett Associates.
The decline has been building over the entire year, as imports dipped in the winter. With the spring, volume started to rebound. In April, the major ports handled 1.78 million Twenty-Foot Equivalent Units. That was an increase of 9.6% from March. Still it was a decline of 21.3% year over year – reflecting the record cargo hauled in over the spike in consumer demand of 2021 and the inventory glut 2022.
In 2023, consumer spending is remaining resilient with in a strong job market, despite the collision of inflation and interest rates. The economy remains different from pre-pandemic days, but shipping volumes are beginning to once again resemble the time before COVID-19.
“Economists and shipping lines increasingly wonder why the decline in container import demand is so much at odds with continuous growth in consumer demand,” said Hackett Associates Founder Ben Hackett, in a statement. “Import container shipments have returned the pre-pandemic levels seen in 2019 and appear likely to stay there for a while.”
Retailers and logistics professionals alike are looking to the second half of the year for a potential upswing. Peak shipping season occurs in the summer, which is in preparation for peak shopping season over the holidays.
Yet disruption could occur on the West Coast if labor issues can’t be settled. This week, ports from Los Angeles to Seattle reported closures and slowdowns as ongoing union disputes boil over, CNBC reported. NRF called on the Biden administration to intervene.
“Cargo volume is lower than last year but retailers are entering the busiest shipping season of the year bringing in holiday merchandise. The last thing retailers and other shippers need is ongoing disruption at the ports,” aid NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “If labor and management can’t reach agreement and operate smoothly and efficiently, retailers will have no choice but to continue to take their cargo to East Coast and Gulf Coast gateways. We continue to urge the administration to step in and help the parties reach an agreement and end the disruptions so operations can return to normal. We’ve had enough unavoidable supply chain issues the past two years. This is not the time for one that can be avoided.”