U.S. retail sales were strong over the holidays, with discretionary retail spending rising over both 2020 and 2019. During the extended holiday season in 2021, some core assumptions about the kind and size of retail growth were exceeded and there appears to be strong momentum leading into the first quarter of 2022. Even so, the nature of the ongoing COVID-19 pandemic means the cadence of retail sales will be far less predictable than in the past.
Brands and retailers need to be nimble, not only to prepare themselves for the coming headwinds, but also to make the most of the available tailwinds, in the coming year. Following are five important retail industry trends to be aware of, and prepare for, in 2022 …
Total Retail Dollars: Q4 2021 Results
The final week of 2021 (Dec week 5) sales grew +1% to 2020 and +16% to 2019. Total Q4 performance exceeded both 2020 and 2019, up +9% and +14%, respectively.
Dollar Volume by Week
Week Ending October 12, 2019 – through Week Ending January 01, 2022
Source: The NPD Group/Point-of-Sale First Read Data/Limited Release Discretionary retail includes the following industries: accessories, apparel, auto parts, beauty, consumer technology, DVD/Blu-ray, footwear, housewares, juvenile products, office supplies, small appliances, sports equipment, toys, video games.
1. Swings in supply and demand
The global supply chain experienced a lot of turmoil in 2021, with the COVID-19 pandemic and its variants continuing to throw punches, even after the arrival of vaccines. Manufacturers and the retail industry were forced to deal with surges in demand last year, even as manufacturing capacities fell short.
The congestion in the supply chain that came with the onset of the pandemic eased up a bit over the holidays; however, we can expect to see some supply-chain issues cropping up in the coming year, even with consumer demand declining after the holidays.
Looking deeper into retail industry categories, it’s apparent there’s been a mixed reaction when it comes to the replenishment of supply. Even after Christmas and New Year’s, some retail categories are still playing catch-up, while other industries that have caught up might end up putting more product into the supply chain than the actual consumer demand can handle.
“While it’s apparent that some inventory replenishment is centered firmly on current consumer demand, that demand could easily pull back in the next few months,” said Marshal Cohen, chief industry advisor for NPD. “Retailers and brands must continue to carefully track the needs and shopping behavior of their customers, in order to keep the balance between supply and demand on an even keel.”
2. Interruptions to consumer financial comfort
Increased federal aid, including stimulus checks, unemployment support, and other benefits have been one of the primary reasons retail sales have maintained, and even grown, as the pandemic continued to wreak havoc on the county and larger world. However, much of that aid has already been pulled back, as we enter the third year of the pandemic. And that means there is less money available to spend on discretionary retail items.
During the first two years of the pandemic, retail sales for all income levels grew. However, now it’s those customers with higher household incomes who are driving majority of growth. “With credit card debt rising again, and savings declining, look for upper income consumers to drive much of the growth in 2022,” Cohen said. “While this sounds like an advantage for luxury and high-end products, it is actually more of a challenge because the aspirational consumer’s ability to reach up will dwindle, creating a void for the upper market.”
3. Experiential rebalancing
With U.S. and global vaccination rates increasing last year, even as COVID variants began to rise, consumers started spending again on travel, dining out, and other experiences. If optimistic predictions of consumer behavior continuing to bounce back in the coming year play out, retailers and brands should look beyond what happened last year and focus on key shopping behaviors that might change, as well as those that could remain in force for months, or even years, into the future.
“Multiple and long-term commitments to experiences, and the resulting impact on general merchandise sales will likely remain low,” Cohen said. Consumers are still treading lightly when it comes to returning to social activities and vacations.”
Of course, there are a few industries, like luggage and apparel, that will benefit from the return to travel and going out. However, others will not. “Sales of small appliances will continue to be strong if consumers continue to work and cook meals from home,” Cohen said, “but if these consumers start commuting to work and spending more on dining out, those hoped-for sales will most likely not materialize.”
4. Repercussions from the ASP story
With manufacturers finding it difficult to create and ship products, they are often focusing on products with higher profit margins that, in turn, enable retailers to raise prices. In fact, average selling prices (ASPs) of all kinds of products have already risen across the board. Look for this situation to remain in force in the coming year, but we can expect it to settle back a bit from last year.
Average Price By Industry
Average Price % Change: Annual 2021 (Jan-Dec)
Average Price % Change vs LY
Source: The NPD Group/ Point-of-Sale Early Indicator Report, NPD Universe , 52WE 01/01/2022
Many products have experienced price increases of as much as 25%; however, as demand settles back and supplies catch up, prices will again decline – still leaving consumers with higher prices than they enjoyed in 2019 and 2020, but not as high as in 2021. “By the middle of the year, or even sooner, many retailers will find that they need to incentivize consumers’ lower demand levels and will once again resort to promotions to do so,” said Cohen.
5. Off-course replenishment and upgrade cycles
Despite early hopes, the “COVID lifestyle” continues, and returning to “normal” sometimes seems a long way off. This level of uncertainty means we can’t predict exactly what might happen, in terms of product replenishment and upgrade cycles this year; however, it’s important to keep them top of mind.
In the apparel industry, for example, people working from home tend to wear (and replace) bedroom slippers and other comfortable clothing that’s more appropriate in the home environment more often than the pro-forma suits and shoes worn in the office. Likewise, more time at home also leads to more free time available to watch the latest shows on Netflix, which could be a boon for TV upgrades.
“Many retail categories, especially technology, got a big boost in 2020 and 2021, as businesses and consumers upgraded their laptops and other hardware and software to optimize working from home,” Cohen said. “But if I bought laptop during the peak of the pandemic, will I buy another one this year? Most likely not. The regular upgrade cycles have leapfrogged. Those early upgrades at the start of the pandemic means the next push to upgrade will come later.”
What it all means for retailing in 2022
Overall, 2022 will likely continue to bring growth to the overall retail industry. However, there will still be a host of challenges to navigate, since uncertainty surrounding the COVID-19 pandemic will remain. We are still playing supply-chain catch-up with many industries, pricing remains a challenge, and consumer demand and appetite will shift backward, all while retailers and manufacturers throttle back on commitments. Retail growth opportunities are still there, but they will be fueled by innovative products and replenishment, as consumers engage in the continuation of a new cadence of consumption.
Vertical Industries: What’s in Store for 2022?
Consumer lifestyles have certainly changed over the past 21 months and many of those changes will remain, in full or in part, in the coming year. Spending more time at home cooking, cleaning, working and entertaining all continuing to be a bigger part of our daily lives at home. Even as more consumers return to work and social activities, retail sales will not immediately snap back to pre-pandemic modes.
Executive Director, Industry Analyst
Here’s what we’re watching as 2022 gets underway:
Sales will remain strong but are likely to fall below 2021 – The market finished the year 19% ahead of 2019 on a unit basis. The factors driving that amazing performance, such as pre-vaccination stay-at-home orders, the child tax credit, and more mental space following a contentious election, will not be with us in the same way in 2022. Sales won’t fall off a cliff but prepare for negative comps.
Physical retail will remain vital – Though sales are likely to soften, consumers will continue to return to stores as the pandemic transitions to a “living-with-it” reality. From re-branding and re-merchandising efforts, to community-building strategies, live-selling, and aggressive promotional campaigns, some retailers are really going to nail it, and physical bookselling will grow share overall in 2022.
NFTs and other digital innovations will pick up speed – The book market grows when new technology arrives, and generally that growth is additive. While it’s still early, NFTs and block-chain technology offer some interesting opportunities for books.
Vice President, Industry Advisor
2021 was a record setting year for the U.S. consumer technology industry, with sales reaching nearly $127 billion dollars. Looking ahead through 2024, revenue declines are expected, though total sales will remain above pre-pandemic levels.
In the near-term we are anticipating slowing demand from the extraordinary rates we have been seeing over the last two years. With such high levels of purchasing in 2020 and 2021 driven, in many cases, by pandemic lifestyle changes, we are seeing a larger, and younger, installed base for a number of devices. This will inevitably slow consumer needs in the immediate future for technology updates and upgrades.
A trend that began pre-pandemic but will carry into the new year is rising average selling prices (ASPs). 2022 will see the fifth consecutive year of industry level ASP increases with overall unit pricing expected to top $72, up $16 from 2018. Going forward NPD expects to see selling prices remain stable at this new, higher level due to the combination of strong demand for premium solutions and softening consumer needs for lower value device categories.
Executive Director, Industry Analyst
Despite a slower than hoped exit from COVID restrictions, many consumers are commuting again and going back to workplaces either part or full time, which will change their needs during mealtimes. Over the next year, we expect the following overarching consumer behaviors to take focus:
- Greater demands for convenience – With many businesses opening their workplaces toward the end of 2021 and with more planned for 2022, speed and convenience will once again take center stage on days when consumers are commuting.
- Controlling food costs – As consumers commute more and engage in more activities away from home, they’re still relying on items from their pantries to keep the cost of the meal lower than a meal bought at a restaurant.
- Food as medicine – Look for baby boomer consumers to seek remedies for health issues with substances like CBD and turmeric alongside traditional forms of treatment.
Executive Director, Industry Analyst, Fashion Accessories
Last year we talked about how consumers getting back to the office and returning to travel and gatherings would fuel the recovery. And while there has certainly been progress here, consumers have now really settled into their new lifestyles — particularly as it pertains to work and flexibility. And that means the concepts of “comfort” and “casual” will continue to drive sales, even as more dress-oriented styles slowly improve.
Here are some of the trends we are watching, as they play out in 2022:
- Continued focus on wellness (i.e., resolutions) – likely to benefit some athletic categories as well as comfort in footwear. There is an opportunity for accessories to play a role too (e.g., functional bags to support outdoor activities).
- Sustainability – consumers increasingly say this is important but brands/retailers still struggling to execute and communicate.
- Supply chain – still unstable and likely to remain so for a good part of the year.
- Distribution changes, tighter assortments, and merchandise flow timing shifts – partly driven by supply chain issues but also shifts in consumer behavior.
- Other macro impacts – savings rates declining, child tax credit ending, women leaving/staying out of workforce, etc.
Executive Director, Industry Analyst
It’s clear that products providing social connection, outdoor escape, and physical activity are the real winners during the pandemic. However, now that some of these needs are diminished, should we expect a downturn in cycling sales in the years to come?
On the face of it, the answer could very well be “yes.” However, there are numerous reasons why we can reasonably expect a return to solid growth.
As we look forward, many factors point to a potential surge in cycling sales in the coming year. First, sales of e-bikes continue to grow. Now a $741 million category, e-bikes revenue grew 47% in the 12 months ending October 2021, compared to the same period in 2020. The growth of e-bikes should come as little surprise because they address the needs of an aging U.S. population, provide easy access to a family-friendly outdoor activity, and address some of the need for commuting in denser population centers.
Executive Director, Industry Analyst
Rising gasoline prices have begun to affect overall consumer spending. Gas prices have always been a story for the automotive world, in terms of how much people drive, but the situation will have broader implications for consumers — notably, lower income households.
Following are some of the aftermarket trends we are watching in the coming year:
- The automotive aftermarket hit a high point in 2021 and we expect 2022 to outperform pre-COVID periods but not quite to the level we saw in 2021.
- “Distanced vacationing” remains very strong, as consumers continue to utilize RVs, boats, and other vehicles, as a way to get out of the house but still avoid huge crowds. Road trips will continue to be front and center, as an alternative to air travel.
- With used car prices at an all-time high, we are keeping an eye on vehicle prices. Used-car values could eventually crash, which would have negative effects on consumer confidence and other fronts.
Notebooks, Chromebooks, and many work-from-home categories (e.g., USB cameras, monitors, keyboards) that saw tremendous demand over the last two years are expected to experience a return to more typical sales levels in 2022. Slowing sales for Chromebooks will result from a return to in-person learning, as administrators pause to better understand usage, utilization, and the general status of the millions of deployed devices. Sales of software and cloud infrastructure categories are expected to gain steam in 2022, driven by digital transformation efforts begun during the pandemic and with a focus on remote workforce security, continuity, and productivity.
The pivot to working from home that began in 2020 jumpstarted the momentum around digital transformation, which will continue to be a significant driver of future technology spending. Changes made to business operations are also likely to lead to increased spending, as projects utilizing artificial intelligence (AI), machine learning, internet of things (IoT), automation, and other emerging technologies become more mainstream.
Vice President, Industry Advisor
The prestige beauty industry received a shock in 2020 and proved its resilience in 2021. Our industry is unique, in that our products spread joy through self-confidence, which is part of what keeps beauty products relevant and important in the minds of our consumers. The future of our industry rests on many things but it is fundamentally related to the consumer and the lifestyle she leads. The following areas will deliver the most sales impact in the short, and long, term:
- Global recovery will lead to changes in our industry. If markets continue to struggle, it will weigh down the current global revival.
- The role of retail continues to shift. While brick-and-mortar stores remain strong, growth in the online channel has been slowing. At the same time, direct-to-consumer (DTC) sales are playing a bigger role.
- Pricing shifts will continue as price promotion continues to rise. This dynamic will make finding points of differentiation to increase demand increasingly important.
- Demand levels have never been higher. Recognizing the signals to watch — including a return to offices, travel, experiences, and events — will keep you ahead of the changes in demand for our industry.
- Consumer lifestyle has changed in many ways but engagement with beauty products remains high, even as it evolves.
Executive Director, Industry Analyst
We expect 2022 will bring continued innovation related to working, learning, and playing, as well as an increased focus on pricing strategies and promotional mix for manufacturers and retailers in the industry. Consumers are adapting to an evolving normal and the office and school supplies industry will need to meet consumers not only where they are now but also where they are going next.
According to the latest “Future of Office Supplies” forecast from NPD, the first half 2022 will be particularly challenging. With sales of several creative, gifting, and crafting categories shifting to the second quarter along with Easter holiday shopping, we can expect a 5% revenue decline. Although there have been disruptions to the start of school during the second semester due to rising cases and labor challenges, more schools that experienced closures during the first week of the year are returning to in-person learning. The combination of increased Easter spending in Q2 and reduced disruptions when compared to 2021, Q2 sales are expected to be flat.