Director, Washington, D.C.
After a tumultuous fall 2016 full of surprises, retailers can’t be blamed for feeling that the holidays couldn’t come soon enough. Now that the results are in, did holiday sales deliver?
According to the US Census Bureau, holiday seasonally adjusted retail sales increased 3.4% year-over-year, which fell within the lower end of our prediction of 3.3% to 4%. While this is an increase from last holiday’s lackluster sales gain of 3.1%, the holiday sales trend line continues to disappoint relative to the holiday sales growth we were accustomed to seeing before the financial crisis (figure 1).
One interesting outcome of this holiday’s reporting is a fairly significant differential between the seasonally adjusted numbers (which we use) at 3.4% versus the non-seasonally adjusted sales growth of 4.1%. This 16% differential was the highest we’ve seen since 2012.
Retail continues to be a game of winning and losing sectors. Non-store/ecommerce is again the breakout retail sector, but generally the winning categories were a combination of less discretionary and durable goods, while non-durable/non-discretionary goods were the losers.
Not only is ecommerce growing at breakneck pace, but a report from Adobe Digital Insights1 indicates that sales growth continues to be concentrated on peak ecommerce sales dates—including a 16% YoY ecommerce growth rate for Cyber Weekend as well as surging sales the last Monday before Christmas.
These online peaks are wreaking havoc on retailers’ inventory management, fulfillment centers, and parcel carriers. Retailers are working relentlessly to manage in-stocks as well as capacity to ensure that service levels meet ever-rising consumer expectations.
They are increasingly facing the question of whether to “build the church for Easter Sunday,” or whether they can find less expensive ways to manage these peaks:
Supplying fast and free shipping
As the holiday ecommerce spikes keep coming, retailers should take a hard look at their fulfillment strategies to make sure they are prepared to meet the demand—not only during the holidays but also year-round. Consumers increasingly expect free delivery, with 75% of respondents to our recent study saying that free shipping “greatly” impacts their ordering decisions, and 18% of respondents stating that they will not wait more than two days for delivery—both significant increases from prior years.3
As ecommerce continues to be retail’s growth engine, it becomes more important to optimize your mix of transportation modes and service levels. Five years ago, it may have been sufficient to simply use traditional package express providers (like FedEx, UPS, USPS, etc.) to handle home deliveries. However, limiting yourself to those options today may not make sense, both from a service-level perspective (because of the increasing need for rapid delivery), and a cost perspective (because of new opportunities to reduce costs by consolidating shipments).
Posting cost savings
Retailers need to reduce transportation costs and enhance service levels across each segment of their distribution operations (figure 4). For example, for low-volume deliveries that aren’t time-sensitive, you can take the traditional approach and look to large, national package express carriers. But as volumes increase and the retailer achieves critical mass in deliveries from a distribution center (DC) to a specific region, you may want to reduce high per-unit package express costs. This is where you can look to partner with third-party logistics providers or build your own network of truckload deliveries to these destinations.
The road to fulfillment
As the consumer environment continues to evolve, retailers should better position their distribution operations to not only meet existing needs but also anticipate likely market changes in the next 5-10 years. To that end, we recommend taking some clear steps now to ensure the competitiveness of your network going forward.
Retailers that design and implement their fulfillment strategies this spring should be well-positioned to reap the rewards heading into this year’s holiday season.
Good luck in 2017.
For our complete data pack of retailer and macroeconomic data including many of the key economic indicators discussed above, please contact firstname.lastname@example.org.
|1||"ADI: Holiday 2016 Unwraps New Online Shopping Behaviors," Adobe Digital Insights, January 17, 2017.|
|2||JC Penney Q3 2016 8-K.|
|3||AlixPartners 2016 Consumer Shipping Survey|