Jelinek Keith HorizontalBased on its recent survey of over 100 retail executives, Berkeley Research Group predicts another year of moderate holiday sales growth and aggressive discounting and pricing. By Keith Jelinek

Executives in the October BRG survey show a cautious optimism for their companies and retail segments when it comes to holiday sales expectations: 46 percent foresee slight increases for their retail segment; 39 percent expect a similar increase for their own company. Approximately 25 percent see sales declines, with about 17 percent expecting flat holiday sales. But promotional activity has the potential to materially impact retailers.

Over the last several years, holiday sales have been characterized by heavy promotions as retailers have fought to grab their share of consumers’ holiday spending. In the BRG survey, executives indicated that they anticipate a more promotional holiday season in 2017; 64 percent expect promotional activity to play a more prominent role in driving holiday sales in 2017 compared to last year. A number of factors are likely to drive high promotional activity during the 2017 holiday season:

* Weather: Unseasonably warmer weather has created excess inventories that retailers need to move.

* Industry Distress: Many retailers enter the holidays with soft sales in the late summer and early fall and will be aggressive with promotions as they seek to clear inventory to generate cash.

* Consumer Expectations: A record number of store closings has conditioned consumers to buying at large discounts. Consumers will be looking for the type of discounts they’ve seen throughout the year from going-out-of-business sales.

* Long Shopping Season: In 2017, there will be five shopping weekends instead of four after Thanksgiving, and Christmas day falls on a Monday. Shoppers may wait until the last two weeks of December, leading to a highly promotional close to the holiday.

Retail Implications – Call For Action

Online sales will drive holiday sales again in 2017, but the price to retailers will be reduced margins. Shoppers will find great buys both online and in-store as holiday promotions begin to roll out. We expect online sales to increase by approximately 15% this holiday season, but that comes at a cost to bricks-and-mortar stores.

Retailers are approaching the holiday with anticipation and trepidation, and expect modest sales growth this year, but that’s far from the whole story. Given the calendar, holiday success will likely be driven by the final two weeks of the season. Achieving higher top-line sales will likely require added promotional activity, along with increased execution and complexity costs.

Executives sent a clear signal that promotional activity will be higher this year, and this message crossed retail segments. Through the holiday sales period, success will hinge on retailers’ real-time agility. Retail teams can still take key actions to drive a profitable holiday season:

1. Manage store labor effectively; monitor and adjust as the holidays progress. Traffic will peak on Dec. 22 and 23—retailers must determine which actions can be put into place to get customers in and out of the store quickly.

2. Monitor seasonal sell-thru daily; in retail, the first markdown is the best markdown.

3. Fine-tune merchandise allocation adjustment; ensure product is placed in the best stores.

4. Review e-commerce free-shipping thresholds and determine how late in the season the supply chain can offer guaranteed delivery windows.

Retail sales increases will likely come at the expense of increased profitability, as added promotional activity and complexity are required to generate top-line sales. This dynamic will not just impact retailer success during the 2017 holidays, but will likely lead to further retailer challenges in 2018.

Keith Jelinek is a Managing Director at California-based Berkeley Research Group where he is a member of the Retail practice. For more than 35 years, he has led and advised Fortune 100 retail companies C-level executives. 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position or policy of Berkeley Research Group LLC or its other employees and affiliates.

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