The holiday shopping season is officially underway and it’s shaping up to be just as unconventional as the rest of 2020. In a year where everything is different, holiday shopping is proving to be no exception. For months, manufacturers and retailers have been working to reinvent their holiday programs in an attempt to encourage earlier purchasing, spread out sales, and to ensure demand can be met given inventory and logistical challenges. From Amazon’s Prime Day rescheduling to the reinvention of Black Friday and Cyber Monday, this “holiday shift” will have a major impact on the Canadian retail landscape this holiday season. Further complicating the matter has been the reintroduction of widespread regional lockdowns and retail restrictions across Canada, which have amplified the challenges facing retailers this holiday season.
Personal Safety Drives Consumer Behaviour This Holiday Season
While retailers have been scrambling to adjust their holiday planning, so too have consumers. In a recent survey by The NPD Group in Canada, 44% of Canadians suggested that they are shopping online more often during the pandemic. And while a relatively small number (3%) of consumers suggested that they have stopped shopping in-store completely, 28% said they are shopping in-store less often but spending more per shopping trip. There is also growing demand for contactless options this holiday season, with 14% of consumers suggesting they prefer contactless service and to be able to interact with products and store associates digitally/online. What is abundantly clear is that consumers are extremely cognizant of their personal safety when visiting retail, with 57% claiming that their health and safety was their main concern when visiting an in-store retailer. *
A Year of Obstacles and Opportunities
While the pandemic has amplified challenges in some retail segments this holiday season it has also created unique opportunities in others. Two industries that have benefited significantly from the aforementioned shifts in consumer behavior are toys and video games. Both industries are heading into the peak holiday season from a position of record growth, having experienced year-over-year sales growth every month since March.
“The repeated calls in the media to shop early to avoid stock and shipping issues seem to be having an effect, although time will tell if the strong retail sales to this point are all incremental, or partially consist of December sales taking place earlier in the season”, said Joan Ramsay, Entertainment Industry Analyst at The NPD Group.
Another industry that has seen strong growth since the start of the pandemic in Canada is small appliances. From bread makers and multi-cookers to robotic vacuums and air fryers, consumer demand has remained incredibly strong since the spring. The industry has also been significantly impacted by the
rescheduling of Amazon’s Prime Day. The week of Prime Day in October saw small appliance dollar growth of +60% versus 2019, while units grew by +21%. Interestingly, growth did not slow significantly in the remaining weeks of October. In fact, the week after Prime Day saw growth of +42%, and the last week of October saw growth of +37%. What’s most encouraging is that these record breaking sales increases are occurring right before the critical weeks of Black Friday and Cyber Monday, which represented over one quarter of all Q4 units sold in 2019.
“This year, Black Friday deals started very early in November, with retailers offering early or pre Black Friday Events”, said Pam Wood, Home Industry Analyst at The NPD Group. “Undoubtedly weekly importance and seasonality will change this year as retailers try to maximize the holiday season. This early kick start to the holiday season should benefit consumers as retailers fight to win their holiday dollars.”
The month of October also marked the unofficial early start of the holiday shopping season in the technology industry. The IT industry was the main driver of sales in October amid concerns around shipping delays and possible store closures which, as of late November, have come to pass.
The impact of Prime Day was visible in elevated growth rates during the second week of October. However, the impact of this early holiday dealing varied by category. Monitors, for example performed about the same as the average of the 4 weeks leading into Prime Day. PC headset growth was slightly slower than the prior 4 weeks and streaming media players, sound bars and tablet accessories all grew faster than the prior 4 week period that preceded Prime Day. Overall, October dollar sales increased 45% over last year and units were up 7%.
“October dollar sales increases were the highest we have seen so far this year”, said Chris Brugman, Technology Industry Analyst for The NPD Group. “In fact, this is the first time we have seen dollar growth for all industries and no negatives on units since the pandemic began.”
For Some Industries, Pandemic Pain Continues
Beauty has been one of the hardest hit industries during the pandemic. While some categories like skincare, fragrance and hair are performing better than others, overall the industry has yet to reach recovery. Year to date sales ending October 2020 declined -18% vs. last year.
“There is a social aspect to shopping for beauty. Grabbing a coffee, browsing, having a makeup consultation or simply discovering a new scent, it’s all about feeling good. We expect the industry to recover and specifically makeup sales, once consumers start to resume their day-to-day lives”, said Alecsandra Hancas, Industry Analyst at The NPD Group.
Despite the decline, we have seen growth in hair, body skincare, home scents, ancillaries and nail as consumers explore and invest in their at-home spa routines.
Leading into the holidays, beauty sales typically shine in the two most important months of the year, November and December. When combined, on average they account for a quarter of total annual sales. Although October is typically a slow month, the acceleration of online shopping this year is significant. In October, beauty online sales grew +55%. Even in categories such as fragrance that traditionally are purchased in-store, we saw ecommerce sales soar +107% vs. last year.
Whether consumers plan to shop online or closer to home, gifting is a clear opportunity to spark joy. Free shipping and returns, free samples and gifts with purchase are top of mind for consumers this year, whether they are shopping for themselves or for a gift.
Another industry that has not experienced a “pandemic lift” is apparel. Not surprisingly, apparel sales have been severely challenged since March as consumers have reprioritized their spending habits. Widespread lockdowns and restrictions on restaurants, bars and nightclubs coupled with increases in working and learning from home have also negatively impacted the apparel industry across most categories. Q4 has historically been flat across the industry, and in 2020 October apparel sales were down -8%. Over the past 3 years Q4 growth has come from online sales as brick and mortar sales had been showing declines even before COVID. Given the current retail dynamic it’s fair to assume that this trend will be amplified for holiday 2020. To that point, in October ecommerce represented 38% of the apparel spend, which is a 12-point increase from 2019.
“One trend that is driving growth in the apparel market is comfort. In particular, consumers seem to be embracing the new normal by “Zoomifying” their wardrobes”, said Tamara Szames, Apparel Industry Analyst at The NPD Group. “In fact, the percentage of spend on apparel bottoms is at the highest level in 5 years. This is being driven by growth in sweatpants, sweat shorts, active pants and leggings – all items that will likely continue to grow throughout the holiday season.”
Interestingly, apparel holiday gifting was up over +50% in October and is at the highest share of spend for October in over 5 years. Almost 60% of that spend was driven by online sales. Online holiday apparel sales for October grew 8 times faster than brick and mortar sales. This suggests that while consumers may not be anxious to return to brick and mortar stores this year, they are eager to begin their holiday shopping. While this is encouraging news, the stark reality is that for the market to remain flat to last year, November and December sales need to collectively increase by more than 60%, which simply will not happen. At best if November and December sales are to remain flat to last year the market will have compressed by -14% in 2020.
*Source: The NPD Group/Annual Canada Omnibus Survey
**Source: The NPD Group/Canada Retail Tracking Service (industries included: toys, video games, small appliance, technology, , beauty, apparel).