The Supply Side: Retailers push for earlier holiday sales

Consumers and retailers are already shopping for Christmas a few weeks before Halloween.

Amazon’s Prime Big Deal Days (Oct. 10-11), Walmart’s Holiday Online Deals (Oct. 9-12), and Target’s just-completed Circle Week (Oct. 1-7) all wooed consumers to shop early in an uncertain holiday season.

Retailers began merchandising for Christmas while back-to-school was still on shoppers’ minds. Several economists, including Jack Kleinhenz of the National Retail Federation (NRF), recently warned that “while consumers are still spending, the composition of their spending continues to favor services over retail goods, and even then, there was less momentum going into the third quarter.”

NRF now expects annual retail sales to grow at 4% or lower, down from 4% to 6%, as previously forecasted, barely keeping up with inflation. However, several reports indicate that consumers plan to shop earlier this year for Christmas.

Insider Intelligence reports that half of consumers expect to start holiday shopping before November. Consumer marketing firm Celigo says more than half of consumers began shopping in early September. The consensus from the Celigo report indicated that waiting for last-minute deals on Black Friday and Cyber Monday appears to be a thing of the past.

CNBC’s recent retailer survey revealed that this year will be a downbeat holiday season. The survey’s “early read on peak season order activity shows retailers ordering less and expecting the consumer to be on the lookout for discounts and freebies to entice them to buy more.” Despite inflation being at its lowest annual rate in more than two years, 71% of CNBC survey respondents said they are “concerned the consumer will cut back on holiday spending in response to inflation.”

Scott Benedict, an affiliate partner at retail consulting firm McMillanDoolittle, said the Christmas creep this fall will likely pull forward sales that would have typically occurred in late November or December. He said that could also mean a lighter fourth quarter for retailers and skew the year-over-year holiday sales comparisons if more sales appear in the third quarter ending Oct. 31. He said historically, retailers have measured holiday sales from Black Friday through New Year’s Day, which all occur in the fourth quarter for most retailers.

Neil Saunders, managing director of data analytics firm GlobalData, said Amazon’s decision to upend the traditional retail calendar of discounting is pushing other retailers to follow suit. Retail analyst Zak Stambor with market research firm Insider Intelligence said there is likely a limit as to how early the season can start as most shoppers don’t want to buy holiday items when they are heading to the beach during their summer vacation.

Analysts with McKinsey & Co. said perhaps retailers are selling some holiday items left over from last year in hopes of moving them without a markdown. Retailers have said they did order early this year, given the supply chain disruption over the past several years with goods coming from China.

However, retail imports remain below last year’s levels through August. And inventory levels reported by the U.S. Census Bureau indicate retailer business inventories were down slightly in July, the latest available report. Unadjusted inventories were down slightly from an uptick in June.

Compared to a year ago, July inventories for apparel were flat, general merchandise was down 3.7% from the same month last year, and department store inventory fell 11.2% from the year-ago period. Retailers held 11.8% less furniture, appliances, home furnishings and electronics in July compared to the year-ago period. Building materials, gardening and patio inventory levels were down 6.07% in July from a year ago. Given the slower sales pace, the inventory sales ratios were flat to a year ago despite the lower inventory levels.

Walmart CEO Doug McMillon said a solid back-to-school season like the retail giant recorded indicates strong demand for holiday sales. Lowe’s Executive Vice President of Merchandising Bill Boltz said in mid-August that the home improvement retailer was trying to get a jump-start on the Christmas holiday after noting a surge in traffic on Google.com and Lowes.com for holiday products.

Benedict said some retailers are still holding on to back-to-school inventory while also merchandising for Halloween, Thanksgiving and Christmas. He said there is a risk that retailers will be stuck with some excess seasonal inventory by giving consumers too many choices. He said retailers could have to discount older inventory, which would further erode margins.

“You don’t want to have seasonal items still in the store past the season. That is a markdown for sure,” Benedict said.

He said retailers are also being cautious about their buying because they do not want to hold excess inventory at year-end on Feb. 1. Walmart executives have said they have worked mainly through excess inventory well before the holiday season. Target took huge markdowns, which plummeted margins earlier this year, to ensure its excess inventory was moved out.

With the holiday sales season already underway, Celigo said its survey found that nearly two-thirds of respondents will holiday shop more online than in stores this year. They cited product availability, speedy delivery and convenience as their top reasons for shopping with an online retailer over a physical store. The report also indicated that consumers will choose online retailers with fast delivery, low to moderate prices and easy return policies.