Anne Kotlarz – The holiday season spanning from Thanksgiving to Christmas is the most profitable and pivotal time of the year for retailers nationwide—many see over 30% of their annual sales during the peak season. Analysts are eager to see for what 2019’s holiday season had “in-store” for many large retailers, no pun intended.
At first, the 2019 holiday season looked promising for retailers with consumer spending at a high due to unemployment rates at a 50-year low and wages slowly rising. The National Retail Federation expected that this holiday season will produce a growth in commercial sales anywhere from 3.8% to 4.2%, a jump from last year’s 2.1% growth. However, in the wake of last December when retailers saw their harshest sales drop since 2008, this holiday season has the potential to be disproportionately successful for strong retailers and disproportionately troublesome for struggling retailers. A retailer’s performance during the holiday season will reflect in the first quarter of the following year when most store closures are announced—the winners begin the year with strong momentum and the losers vulnerable to closure and liquidation through bankruptcy.
2019 delivered noteworthy closures and bankruptcies for many familiar companies in the retail industry—Forever 21 Inc., Barneys New York Inc., and Payless Inc. Since 2017, there have been more than fifty bankruptcies and 21,000 store closures. Coresight Research estimated that more than 9,300 retail stores would shutter by the end of 2019, with 75,000 predicted to close by 2026. Analysts warn that the numbers don’t lie—the “retail apocalypse” is real and is the most conspicuous during the holiday season. However, what has become apparent is that there is a single common factor among the retailers experiencing poor performance this season: a weak digital presence.
Whether you begin holiday shopping on Black Friday or just before the big day—all hail two-day shipping—it is impossible to ignore the allure of the not-so-traditional form that holiday shopping has taken given the rise of e-commerce. Retailers entered the 2019 holiday season with the intimidating prospect that online transactions are more prominent than ever—from January and September of 2019 DynamicAction, a retail software firm, analyzed more than $11.6 billion in online transactions.
According to a study done by Episerver, 39% of holiday shoppers prefer to do their shopping online, 36% prefer to do their holiday shopping in-store, and 25% prefer both online and in-store holiday shopping. For the online shoppers, 42% expect to buy their gifts via Amazon this holiday season. In November of 2019, Cyber Monday retail sales were expected to top $10 billion, according to Business Insider, well surpassing Black Friday sales. As a result, credit investors and lenders are watching traditional brick-and-mortar retails such as J.C. Penney, Neiman Marcus, Chewy Inc., Pier 1, Steinhoff, Camping World, to name a few, whom are struggling to compete with companies like Amazon.
Retailers who have predominant brick-and-mortar store locations, such as Target and Walmart, that are unscathed by competitors like Amazon have focused on digital transformation by perfecting the “omni channel experience” for shoppers—offering both an online and in-store retail experience. Target’s CEO Brian Cornell explains, “in a world where consumers have more choices than ever, inferior brick-and-mortar experiences will go away.”
Bankruptcy courts have also identified this trend among the retailers filing for Chapter 11. Judge Gregory L. Taddonio of the Third Circuit commented that retailers are finding themselves in bankruptcy courts because the already challenging commercial environment from the past several years is severely “exacerbated by increased competition and a shift of customer preferences away from physical retail stores.” Companies that are not effectively investing in their digital transformation are now dwindling away into obscurity and insolvency.
The effect e-commerce had on traditional retailers this last holiday season will be brought to light when companies begin releasing their annual earnings reports. Even if a brick-and-mortar retailer was able to survive another holiday season without declaring bankruptcyt, it is safe to say that the days of holiday shoppers flooding malls, pushing through department stores, and standing in daunting lines for hours are a mere artifact of the past.
