With Thanksgiving just three months away, CPGs and retailers are transitioning from the back to school blitz to the 2019 holiday season. The 2018 holidays were quite healthy, with total retail spending up 5.4% to the tune of $998.32 billion. Early projections estimated 2019 holiday numbers to surpass the $1 trillion mark, but analysts have become increasingly bearish as several factors weigh on the economy.
Let’s take a look now at 5 reasons why retailers and CPGs might be worried going into this coming holiday season, and should proceed with a cautious and measured approach.
Poor Foot Traffic
This has been an abysmal year for foot traffic, and consumers looking to avoid the crowds during a condensed holiday season have even more reason to stay home than ever. How will retailers respond?
Expect to see interesting new incentives to bring customers into and around the store this holiday season. This might include clever buy-online-pickup-in-store options, which retailers like Target and Walmart are trying to train customers into. It may also include building foot-traffic-generating partnerships. Target, for example, just announced a new partnership with Disney stores this week, which will open 25 Disney stores in select Target locations by October. Other retailers are allowing returns from other merchants at their stores to draw in foot traffic. It will certainly be interesting to see how people get creative with these strategies.
Shorter Holiday Season
Thanksgiving comes a week later this year, shifting from week 47 to 48. This shortens the holiday season by six days. Depending on how you look at this (and respond) it could be a good thing or a bad thing.
Retailers have fewer days to work with, and therefore, fewer opportunities to generate sales. However, there is also less room for drop off between the early Black Friday/Cyber Monday sales rush and Christmas. Building out smart campaigns to sustain steady sales over this period could pay off wonderfully, as consumers are primed to be in a sustained “buy now” mindset.
The economic yield curve has flattened out and begun sloping downward over the past year, a good indicator that a recession is likely on the way. Economists tend to agree. In fact, in a February 2019 survey of 281 members of the National Association of Business Economics, 77% of the economists polled expect a recession to hit by 2021. Top-level finance executives were even less optimistic with another survey showing 80% of CFOs polled expected a recession even sooner – by the end of 2020.
The trade war between the U.S. and China is putting even more stress on the situation, and Morgan Stanley Chief Economist Chetan Ahy speculated earlier this week that if a new round of tariffs hit a global recession would follow within six to nine months. How much this does or doesn’t affect holiday spending remains to be seen, as the situation and confidence in the economy swings dramatically from day to day. Who knows where we’ll be by late November?
Trade War Instability
Anxiety over the economy is just the tip of the iceberg when it comes to trade war fallout. Many companies have been working to move their supply chains out of China for months, but for those who don’t have an existing footprint in other countries, an unpredictable trade war and the possibility of new tariff increases could result in a slew of complications leading into the holiday season.
The threats of potential supply chain disruption, unstable pricing and unstable margins will weigh heavily on the minds of many CPGs and retailers going into the final stretch of 2019. Just within the last week, President Trump threatened to raise tariffs on $250 billion in Chinese products from 25% to 30%, then reported that the Chinese called and said they were ready to negotiate, and then the Chinese denied any such call took place. Needless to say, it’s tough to ascertain exactly what is going on, but it seems unlikely that there is any imminent end in sight.
Less Tourism Spending
Another byproduct of the trade war is a very strong U.S. dollar. According to Wells Fargo Senior Analyst Ike Boruchow, this will likely lead to a decrease in tourism spending this holiday season. Companies such as Tiffany & Co, have had to temper annual forecasts due to the strong dollar’s negative affect on foreign spending
In an interview with Reuters earlier this year, Tiffany Chief Executive Alessandro Bogliolo cited the exchange rate as the source of dramatically decreased global spending by foreign tourists, primarily Chinese. “We see Chinese tourists spending abroad going down heavily, minus 20-25, 30-35 percent, and this is in many, many countries … in the U.S., but it’s also Hong Kong and now it’s spreading to Southeast Asia,” Bogliolo said.
Chinese tourists are traditionally the biggest spenders among international travelers to the U.S., spending an average of nearly $7,000 per trip. That’s about 50% more than the average international traveler. With the number of Chinese visitors dropping over the last 2 years and a weak exchange rate, retailers and CPGs can expect many of those tourism dollars simply won’t be there in the upcoming holiday season.
What concerns do you have going into the 2019 holiday season? Do you think sales will be up this year or down? What are you doing to compensate for potential obstacles in the road to reaching your goals? We’d love to hear what you think. Sound off on social media now and join the conversation.