Holiday Shopping in 2020: Don’t Expect a Big Discount

nathanlphipps

Nathan L. Phipps
Consultant, Wiglaf Pricing

Published December 18, 2020

The COVID-19 pandemic has upended nearly every corner of our economy in 2020, twisting the once familiar into strange mutations. Retail has been one of the hardest hit industries, and modifications to the 2020 holiday shopping season have been profound. At this point, we cannot be sure if these changes represent a permanent change in the retail industry, partially because we cannot be sure if consumer behavior has changed permanently. At the very least, holiday shopping in 2020 will require some adjustment.

More online, less emphasis on Black Friday

Retail sales have been moving from brick-and-mortar stores to online transactions since the 1990s. However, the COVID-19 pandemic rapidly accelerated that trend. E-commerce milestones that looked to be 5 or 10 years away at the beginning of 2020 moved up as more consumers began shopping online. Suddenly that e-commerce investment that was postponed for years and years became the highest priority as businesses everywhere jumped in the deep end of the pool, attempting to meet the sales targets online that they could not meet at their physical locations.

Overall, retail is currently down. The U.S. Commerce Department reported on December 16th that U.S. retail sales (which includes stores, restaurants, and online) dropped a seasonally adjusted 1.1% in November from the previous month. October sales were also revised downward to a decline of 0.1% (from their earlier estimate of a 0.3% increase).

According to a survey from the National Retail Federation and Prosper Insights & Analytics, holiday-related purchases from Thanksgiving Day to Cyber Monday were down 14% from 2019 (though this is close to the 2018 level). The number of in-store shoppers was down 37% from 2019 on Black Friday, and online shoppers on Black Friday grew 8%. Basically, online shopping increased, but not by enough to completely offset the reduction in in-person shopping.

Holiday Shopping in 2020: Don’t Expect a Big Discount

Photo by Tamanna Rumee on Unsplash

While Black Friday was still a major day for retail, retailers pulled back on Black Friday activities this year. In a typical year, Black Friday brings large crowds of shoppers into stores seeking deals. Retailers wisely decided that packing their stores with customers during a pandemic would not be ideal.

Instead, many retailers (including Walmart and Best Buy) offered their best Black Friday deals online for the first time. Since shoppers did not have to show up physically to get a discount, foot traffic dropped at many stores. Further decreasing foot traffic the week of Thanksgiving was the fact that major retailers (including Target, Walmart, and Macy’s) were closed on Thanksgiving Day this year. Adobe Analytics reported that online shopping on Thanksgiving Day increased 22% from last year.

Additionally, retailers started promoting their holiday deals earlier in the season this year. This appears to be related to the fact that Amazon had its annual Prime Day sales event in October (after supply chain issues caused a delay from the previously planned July date). Other retailers started advertising their holiday sales that same month. This has encouraged customers to spread their holiday shopping over a longer time period.

Activity at shipping centers shows the drastic changes in purchase behavior this year. Online shopping saw a steep increase when the pandemic started. Extra shipments for holiday packages have only exacerbated the strain. ShipMatrix, a software firm that analyzes shipping data, reported that 273 million packages were shipped by USPS, UPS, and FedEx the week of Thanksgiving. That is an increase of 43 million from the same week last year.

Less inventory, fewer choices, reduced discounts

Academics have known for some time that the more choices that you present to a customer, the more confused the customer becomes. This is problematic because confused customers do not always make purchases. Evidence for this can be found in a 2000 study: “When Choice is Demotivating: Can One Desire Too Much of a Good Thing?”. In one example, researchers found that paring down product varieties increased sales. When customers were shown 24 types of jam, only 3% made a purchase. When the number of jams was reduced to six types, nearly 30% purchased.

The pandemic began rippling through supply chains in spring, causing supply shortages. Some consumer-product firms responded by reducing the types of paper goods, soda, packaged foods and other products they sold. Many of these firms have embraced their newly streamlined offerings, and some of the products that went away will not be coming back.

On the retail side, supply shortages were not the issue. Rather, lockdowns in the spring caused retailers to cancel orders to avoid excessive inventory. Many applied the Pareto principle (or 80-20 rule) and only stocked their most popular items. Although these inventory simplification efforts may have started before the pandemic, the pace and scope of simplification increased dramatically this spring.

Some retailers are noticing a sales boost after reducing the selection for customers. Bed Bath & Beyond reported that can-opener sales increased by as much as 30% after they eliminated some styles. They plan to eliminate two-thirds of their styles in all. Success stories like this will surely keep businesses focused on simplification for the near future.

So, retailers came into the holiday season with leaner inventories. This means that they have less of a need for deep discounts to clear their shelves. This has allowed many to sell their items at regular prices and guard their profitability.

Of course, there are many holiday deals out there. But many high-profile brands have reduced their discounting. Ralph Lauren reduced its timeframe for online promotions to 10 days for the three months to September 26th, compared to 62 days for the same period last year. Saks did not begin discounting designer goods until July 4th this year, and they scaled back the number of items they will discount this holiday season (especially designer items). Coach will not offer an extra coupon at its discount stores this year, ending a practice that has lasted years. Abercrombie & Fitch pulled back its promotions due to its smaller inventory. Their finance chief noted that they hope to avoid the 70%-off sales that are typical in their stores.

Of course, 2020 has been an unpredictable beast. Something could still change these observed retail strategies. And some struggling retailers may determine that they must do some discounting to capture sales. But on balance, if you do find a healthy discount while doing some holiday shopping, you may want to act quickly. Because now you are aware that discounts are in shorter supply this year.


References

Kapner, Suzanne, Charity L. Scott, and Sarah Nassauer. “Black Friday in a Pandemic Means Fewer Shoppers, Fewer Deals.” The Wall Street Journal. Dow Jones & Company, November 27, 2020. https://www.wsj.com/articles/black-friday-deals-become-tamer-as-covid-19-alters-sales-strategies-11606473001.

Kapner, Suzanne. “Retailers Cut Back on Choices; ‘We Don’t Need Three Types of Red’.” The Wall Street Journal. Dow Jones & Company, November 22, 2020. https://www.wsj.com/articles/retailers-cut-back-on-choices-we-dont-need-three-types-of-red-11605934806.

Nguyen, Nicole. “Five Pricing Moves Companies Made in 2020, From Zoom to Peloton.” The Wall Street Journal. Dow Jones & Company, December 6, 2020. https://www.wsj.com/articles/five-pricing-moves-companies-made-in-2020-from-zoom-to-peloton-11607263200.

Prang, Allison. “Shoppers Spent Less Over Black Friday Weekend.” The Wall Street Journal. Dow Jones & Company, December 1, 2020. https://www.wsj.com/articles/number-of-black-friday-in-store-shoppers-fell-37-11606841884.

Riley, Katherine. “Your 2020 Holiday Shopping Report: How, When and Where People Are Buying.” The Wall Street Journal. Dow Jones & Company, December 17, 2020. https://www.wsj.com/articles/2020-holiday-sales-how-where-and-when-consumers-are-buying-11606996800.

Torry, Harriet. “U.S. Shoppers Pull Back at Start of Holiday Season.” The Wall Street Journal. Dow Jones & Company, December 16, 2020. https://www.wsj.com/articles/us-economy-november-retail-sales-coronavirus-recovery-11608059514.

About The Author

nathanlphipps
Nathan L. Phipps is a Consultant at Wiglaf Pricing. He is responsible for the training preparation and conjoint analysis that supports your company’s pricing project. Nathan will help craft recommendations to help your company manage pricing better. Before joining Wiglaf Pricing, Nathan worked as a pricing analyst at Intermatic Inc. (a manufacturer of energy control products) where he dealt with market pricing and the creation of price variance and minimum advertised price policies. His prior experience includes time in aerosol valve manufacturing and online education. Nathan holds an MBA with distinction in Marketing Strategy and Planning & Entrepreneurship from the Kellstadt Graduate School of Business at DePaul University and a BA in Biology & Philosophy from Greenville College. He is based in Chicago, Illinois.