With Amazon’s second Prime Day event of 2022 scheduled for October 11th and 12th, we can safely say that the 2022 holiday season has officially kicked off. Most retailers and commercial property owners were hoping for a return to normalcy this year and there are clear signs that this year will look more like pre-pandemic holidays than 2020 or 2021. Still, this year offered its own set of challenges which are likely to impact year-end and early 2023 retail performance. Below are some trends we identified for the 2022 holiday season. For our ongoing analysis as the season unfolds, read our weekly executive insights on The Anchor.
1. Consumer Behavior will be Bifurcated.
Much like the broader retail sector in 2022, this holiday season will likely see differing behavior between higher-end and budget consumers. Recent weekly foot traffic data shows luxury department stores outperforming both off-price retailers and the overall apparel average. Year-over-year (YoY) visits the week of September 26th were down just 3.3% for luxury department stores while off-price and overall apparel posted 7.2% and 8.7% dips, respectively.
But while YoY visits to luxury retailers may be outpacing the wider apparel sector, the luxury category still took a hit relative to its own performance in 2021 – largely driven by a decrease in visits from middle-income. Foot traffic data indicates a decline in visits from trade areas with a large share of households earning less than $100K annually, as these households are likely facing more inflationary pressures and operating with tighter budgets due to the absence of stimulus checks.
These trends could indicate that higher-income consumers will continue to spend this holiday season, while other consumers will have a more value-focused mindset.
2. Continued Focus on Services over Physical Goods.
One of the key trends that caught retailers off guard this year was consumers’ abrupt shift away from physical goods to out-of-home services as pandemic concerns dissipated and consumers were eager to get back in the public. Beauty and fitness both saw their visits skyrocket in 2022, with fitness visits up 16.7% and beauty visits up 5.8% for the week of September 26th relative to the equivalent week in 2021.
The beauty and wellness sector will likely continue to be one of the strongest categories in discretionary retail. The beauty category may well receive an additional boost in the coming months as consumers look for budget-friendly gifts, while January 2023 should provide fitness with the significant seasonal boost it missed in 2022.
3. Home Entertaining Categories will be Strong
Home furnishings was one of the hardest hit categories in retail in 2022 as the category laps two strong years of demand and an unsteady housing market. And throughout the end of the year, inventory bottlenecks and higher prices for those retailers that manufacture overseas will still likely result in the home furnishing sector seeing store visits below other discretionary retailers.
Still, both high-end and budget retailers like Crate & Barrel, HomeGoods and others that specialize in entertaining products should see increased demand ahead of the holidays as both high- and low-income consumers plan for a COVID restriction-free holiday season. Interestingly, we’ve heard from several housewares retailers that food preservation products are seeing increased demand ahead of the holidays because of inflation.
4. More Store-in-Store Partnerships on the Horizon
As we outlined earlier this year, many consumer brands are finding success partnering with larger-box retailers for store-in-store partnerships (including Sephora and Kohl’s, Ulta and Target, Toys 'R Us and Macy’s, Disney and Target, and Petco and Lowe’s). Results have differed by brand and by category, but typically we’ve seen a mid-single-digit lift in visitation trends and an expansion in trade area when larger retailers add these store-in-store partners.
Last week ahead of the holiday selling period, Dick’s Sporting Goods and Peloton announced a store-in-store partnership whereby Peloton will sell its stationary bikes and other products in more than 100 Dick’s Sporting Goods stores. The store-in-stores will be staffed by Dick’s employees, and deliveries will be fulfilled by Peloton’s in-home delivery and installation teams.
This announcement may indicate a trend of store-in-store partnerships announced ahead of the holiday season. It’s become more expensive for traditionally digital native brands (DNBs) to acquire customers due to changes in Apple and Google security and privacy actions, so partnering with established brick-and-mortar players allows DNBs to expand their reach while reaching new audiences. At the same time, legacy retailers can use these partnerships as an opportunity to differentiate their product assortment and add new experiential elements while diversifying the way it monetizes its store square footage.
5. Dollar stores and Mass Merchants Will Continue to see Increased Visits
Already, dollar stores are seeing lower-income consumers trade down from traditional superstores such as Walmart, while superstores are seeing middle-income consumers trade down from other channels: Between January and August 2019, only 4.9% of residents in Walmart’s trade area had a yearly household income above 200K, compared to 5.2% in the same period in 2022.
The impact of inflation will most likely continue into the holiday season, with consumers across the income spectrum looking for ways to save on gift and party shopping.
New Year, New Challenges – and New Opportunities
While this year does not pose quite the same difficulty to brick-and-mortar retailers as the Delta-plagued 2021 season, 2022’s holiday shopping season still presents some significant obstacles. Still, along with the challenges come opportunities, and retailers who can appeal to customers’ current value orientation, tap into current consumer trends, or offer high-end shoppers a true luxury experience are well-positioned to benefit.
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