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Holiday 2021: Pent-Up Consumer Demand, Test of In-Store Experience For Retailers

DATE POSTED:September 15, 2021

Rising inflation and the continued spread of COVID-19 may be grabbing headlines and denting consumer sentiment, but former Saks CEO Steve Sadove said he’s confident that demand for retail is still strong and will carry through the end of the year.

“In the near term, meaning through the holidays, we’re in a really good environment for the consumer,” Sadove, senior adviser at Mastercard, said in an interview with Karen Webster. Pointing to savings rate levels and low-interest rates, he said he sees “a very healthy environment, and I don’t see a slowdown.”

Mastercard earlier this week projected U.S. retail sales during the traditional Nov. 1-Dec. 24 holiday shopping period this year to grow by 7.4% compared to 2020 and by 11.1% compared to 2019. Digital sales are projected to grow by 7.6% year over year and 57.3% versus 2019.

“The forecast in aggregate is roughly the trends that we’ve been seeing for July and August,” Sadove said. “Very healthy consumer demand, continuing to be a reopening story … and there’s a demand for freshness.”

Read more: Mastercard Predicts 7.4% Retail Growth During Holiday Shopping Season

With supply chain and labor issues top of mind for both retailers and consumers, though, Sadove said he expects holiday shopping to begin early this year, pushing purchases into what Mastercard dubbed the “75 Days of Christmas,” starting Oct. 11. He added that shoppers also shouldn’t expect to see deep discounts, though some promotions are to be expected since the cost of customer acquisitions are going up across the industry and “a modest acquisition is an effective acquisition tool.” Most retailers assume some level of promotions, Sadove said, meaning a 25% to 30% on apparel, for example, is still profitable.

“It’s not surprising that you’re seeing some degree of promotion, but it’s very controlled,” he said. “This isn’t deep discounting.”

Opportunity Abounds

Nearly every retail category is expected to see a double-digit rise in sales leading up to the holidays, with luxury projected to see a nearly 93% year-over-year increase and jewelry set to see a 59% jump. Mastercard said apparel could also see a nearly 46% increase in sales compared to 2020.

“There’s an enormous amount of excitement about newness in fashion. … People want to get out and experience, and so you’re seeing it in apparel,” Sadove said. He added that as people return to restaurants and going out, they also likely want a refreshed wardrobe and accessories, “and you’ll see it play out for the holiday season.”

“Target’s playing in the fashion space, Walmart’s playing in the fashion space, and so you have a lot more segmentation going on and … if you’re competing, you’ve got to differentiate and segment the consumers,” Sadove told Webster. Looking at non-differentiated apparel, Amazon is winning, he noted, though the eCommerce giant’s luxury business is struggling to break through in the U.S. PYMNTS data show that Amazon made over 13% of apparel sales in the second quarter, though it has seen its share of the category slide as consumers return to trendy styles.

Related: Amazon, Walmart See Sliding Shares of Apparel as Style Returns to the Forefront

Sadove also said that as consumers return to attending events and experiences regularly, rental is becoming a more important segment, as is resale — “there’s a very important consumer base that’s interested in sustainability and reusability, and it’s a way of keeping your closet fresh.”

He added that he expects more brands and retailers to adopt rental and resale models depending on the needs of their consumers.

“When you have demand and categories that are growing, you’re going to start to see differentiation, segmentation, newness, people doing different things,” he said. “I would argue that it’s not going to be one winner versus loser. There’s going to be opportunity for winners in each of these businesses.”

An Evolving Landscape

Sadove also noted the nearly 15% year-over-year increase in department store sales Mastercard has projected, which also represents a 5.2% increase in sales versus 2019.

To be sure, 2019 was still a year in which department stores struggled mightily, with comparable sales down 1% year over year at Macy’s and net sales down 8% at JCPenney, which just months later filed for bankruptcy. Sadove said, though, that he hasn’t seen this kind of growth in the department store sector “in years.”

Whether this trend can continue likely depends on how satisfied consumers are at malls and department stores over the next several months as they shop for gifts. If it’s a great experience in which people find what they want and get good service, Sadove said, they’ll likely go back even if they continue shopping online for certain items; otherwise, physical retail could be in trouble.

“The fastest way to go into a declining trend is to not give a good consumer experience,” Sadove said. “You’re at that moment right now, and some are going to do it well and some aren’t going to do it well. And that’s sort of going to affect how this plays out over the next six months to a year.”

The retail environment is continuing to evolve, he noted, pointing to the increasing number of direct-to-consumer brands opening physical stores as customer acquisition costs continue to rise. Allbirds, for example, is preparing to go public, and recently said they plan to open 200 stores as part of their growth.

“The D2C brands are moving to the center and opening stores, and the stores are moving to the center by becoming more direct-to-consumer through omnichannel,” Sadove said. “So everything is saying that you can’t be one without the other.”