Retail apocalypse now? Our 2017 holiday forecast and consumer survey suggest more heart than darkness

Much has been written about the retail apocalypse of 2017. Although the US economy has been growing since the recession, GDP growth over the past nine years has averaged 2.1%, the weakest near-decade stretch in modern times.¹

The impact on consumer spending and retail appears to be devastating. In fact, Credit Suisse estimates that 25% of the nation’s malls will close in the next five years.² Bankruptcies, store closures, and socioeconomic uncertainty are at the forefront of our minds. The Retail Dive has tracked 19 separate retailers that have announced plans to restructure, find a buyer, or liquidate through September of this year, already more than double the number from last year. In fact, three high-profile retailers filed for bankruptcy as we were wrapping up this viewpoint over the past few days.

Crawling along the edge of a straight razor—and surviving

Amid this seemingly existential horror, it would be easy to think that retail is on the verge of collapse. However, we predict that holiday 2017 core retail sales will increase 3.5%-4.4%, one of the higher growth rates since the recession (figure 1).



Rather than reading headlines, we calculate this forecast by measuring actual shopping behavior. Over the past seven years, sales through the BTS period have accounted for between 66.1% and 66.4% of annual sales, and holiday sales have accounted for between 16.9% and 17.0%.³ Because our holiday forecasts have been very close for many years, and dead-on for the last two, we remain confident in our methodology.

The preliminary data shows that spending year-to-date looks healthy—though not explosive. Core retail sales for BTS grew 3.7%, the third highest rate in the last ten years. And what’s more, studies by IHL group indicate that core retail segments are in fact experiencing net growth of 1,326 stores amid healthy retail sales year-to-date. Although closures may make for compelling stories, nearly three times as many companies are opening stores as closing stores.⁴

How’re you feeling Jimmy?

Although we are forecasting solid growth, winning in retail—like mounting an effective military strategy—requires more than running the business by the numbers. To gain further insights into the holiday shopping season, we got boots on the ground with our 2017 retail consumer survey, which investigates the impact of the economy and retail store closures on consumer shopping trends for the upcoming holiday shopping season.

Nearly a quarter of all respondents across the income spectrum have been impacted by a closed store. That suggests shopping at high-end locations, as well as second and third-tier malls, will be dynamic this holiday (figure 2).




However, instead of a retail decline, we see a retail shift. When asked how a store closure would affect their shopping habits, only 6% of respondents indicated that they would not shop at all (figure 3). That leaves a large share still up for grabs, especially with new openings generating demand.




But customers can’t be expected to stay loyal on their own. In its Q2 earnings call, Macy’s reported that it was able to retain 12% to 40% of its sales from a closed store.⁵ In our view, for other retailers to hit the higher end of that range, they will need to heavily invest in changing consumer behavior and driving traffic to new channels. True, there is no one-size-fits-all solution to maximizing retained sales. But knowing your customer and how to reach them is more important than ever.

Smells like victory

Even with a solid growth rate this holiday season, we expect the battle for customers to be fierce. Retailers will need to adjust their tactics and build the right arsenal to fight the competition:

• Survey the terrain. With changing customer demographics and competitive dynamics, we recommend planning this year’s holiday strategy on a localized basis. Targeting assortments, promotions, and marketing in individual market areas may be the key to victory.
• Strike first. More than 90% of customers expect to start holiday shopping at the same time or earlier than last year.⁶ And of those who expect to shop earlier, 42% expect to spend somewhat more or significantly more than they did last year. Retailers should capture these sales by kicking off marketing campaigns and getting customers into stores early.
• Protect all flanks. A depleted store fleet means even more customers will be beginning their shopping journey online. However, 71% of customers plan to utilize at least one clicks-and-bricks retail service. Providing customers online visibility of in-store inventory, in-store pickup, easy returns by mail or store, and omnichannel delivery is critical to converting site visits to sales.
• Hit ‘em where they ain’t. The best weapon is one your opponent does not have. Because 71% of customers surveyed plan to do the majority of their holiday shopping in stores, retailers with a healthy store footprint can ramp up efforts to engage customers by offering new merchandise, exclusive experiences, and knowledgeable and helpful sales associates.

Good luck with your mission!

Data pack

For our complete data pack of retailer and macroeconomic data including many of the key economic indicators discussed above please contact retail@alixpartners.com.