Tag: Reflections

With the holiday shopping season officially behind us, the Ankura Performance Improvement team reflects on their 2024 Holiday Consumer Survey, examining sales and traffic results to assess the accuracy of their observations. They also provide their 2025 predictions, highlighting the primary challenges facing the retail landscape and key opportunities for performance improvement.

Rising Debt Levels Bolster Consumer Resilience Amid Economic Growth

The 2024 holiday season began with the stock market reaching record highs (DJI at 42,052 as of November 1, 2024), as well as significantly stronger consumer sentiment (with an increase of 19% compared to 2023). By the end of October, inflation returned to more normalized levels, with the Consumer Price Index (CPI) (excluding food and energy) up 3.3% year-over-year and gas prices down 13% year-over-year. These findings were consistent with Ankura’s holiday survey results, which indicated that the U.S. economy had substantially improved. 24% of respondents felt positive about the economy, compared to 17% last year, and those feeling negative dropped from 69% last year to 48%.

Despite this positive economic sentiment, Ankura’s holiday survey results indicated that a majority of consumers were prepared to spend the same, or less, than last year (80% compared to 77% in 2023), and fewer consumers indicated they would spend more (20% compared to 23% in 2023).

In addition, our data showed growing debt levels that continued to add stress to many households. By the end of October 2024, credit card balances had risen by $24 billion to $1.17 trillion, and auto loan balances had increased by $18 billion to $1.64 trillion. Along with this, home equity line of credit balances rose by $7 billion to reach $387 billion, marking the 10^th consecutive quarterly increase since the first quarter of 2022.

Overall, the Ankura Performance Improvement team believed this macro environment would enhance the consumer focus on value and discount shopping throughout the 2024 holiday season, and that there would be a continued shift to online retail offering speed and convenience.

However, the shortened holiday shopping window between Thanksgiving and Christmas presented physical stores with an intensified opportunity to meet consumer needs in the final lead-up to the holidays.

Consequently, the Ankura team recommended retailers utilize percent-off promotions, flash sales, and limited-time offers, along with loyalty programs, to drive sales. The team also advised store managers and supply chain leads to maintain sufficient inventory levels in-store in order to meet the increased and last-minute demand caused by the shortened shopping window.

As the Ankura team accurately predicted, the shortened holiday season caused scrambling consumers shopping for last-minute gifts. This resulted in stronger than expected spending compared to last year, as indicated by recent data from Visa (+4.8%) and MasterCard (+3.8%). Online sales did significantly contribute to the stronger sales (+6.7%), but physical stores also achieved admirable results (+2.9%). Additionally, the last five days of the shortened holiday season accounted for 10% of all holiday spending.

The Physical Store Still Matters

Direct-to-consumer sales accounted for more than 16% of total retail sales as of the end of September 2024, but the majority of sales are still supported by brick-and-mortar locations. Ankura’s survey highlighted that while an online-only customer does exist, physical stores remain relevant. Data from the survey suggests this is especially true during shortened holiday shopping seasons like that of 2024.

As part of the 2024 holiday shopping analysis, Ankura’s Performance Improvement team conducted comprehensive mall audits over the Black Friday weekend, surveying stores nationwide across nine metroplexes to gather valuable insights on consumer behavior, traffic patterns, promotions, and emerging trends. The team visited Main Streets, strip malls, lifestyle malls, traditional malls, and outlet centers.

The team observed that the shortened 2024 holiday shopping season, which had one fewer weekend than the year prior, likely prompted shoppers to act swiftly in acquiring their gifts. The extension of Thanksgiving weekend into December, combined with the sudden onset of winter weather, likely created a sense of urgency among consumers, driving them to seek out the best deals and secure their holiday purchases.

Apparel and footwear brands like Columbia, North Face, Hollister, and Converse, along with Lululemon, Nike, GAP, and Athleta, experienced elevated store traffic on Black Friday, highlighting the popularity of athleisure and comfort. Luxury brands including Coach, UGG, and Michael Kors also performed well, particularly at outlet malls where consumers actively sought out luxury deals. Stores with the most prominent promotions experienced higher traffic, attracting shoppers who remained undeterred by roped-off entry and long checkout lines, compared to those with more modest promotions.

The week leading up to Christmas arrived quickly, and this drove consumers back into physical stores to complete their holiday shopping.

Outlook for 2025

The Ankura team anticipates significant economic uncertainty in 2025. With the stock market reaching historic heights and a new administration taking office on January 20^th, businesses will need to react swiftly to new developments to mitigate risks and avoid significant negative fallouts. Potential large-scale incremental tariffs on products imported from China, Mexico, and Canada will necessitate highly efficient operations, with a critical focus on planning, assortments, inventory management, and pricing optimization in order to effectively manage profit outcomes.

Ankura will assist retailers in focusing on these key trends in 2025:

1) Evolving price-value equation

2) Gross and selling margin management from tariff impacts

3) Inventory management (right product at the right price at the right time)

4) Supply chain cost and timing implications as potential tariffs are announced

5) Direct to Consumer (DTC) fulfillment (and returns) cost optimization

6) Labor optimization and staffing opportunities to manage expenses

While inflation rates appear to be holding steady in the three percent range, potential tariff increases of 10% to 60%, depending on origin and product classification, could rapidly evolve and impact profitability. Merchandise arriving in distribution centers and on shelves beginning in mid-2025 (depending on sell-through rates) may incur higher costs of goods sold (COGS) than in 2024. Retailers should be thoughtful about how they evaluate pricing adjustments and manage operating costs to preserve profitability throughout 2025. The higher landed cost of inventory will also require additional investment to maintain equivalent in-stocks and inventory units on the shelf to support the customer experience.

Retailers should leverage advanced analytics tools and AI to drive tailored, dynamic pricing and promotions, encouraging cost-conscious shoppers to continue adding items to their baskets. Real-time price adjustments (based on demand, competitor pricing, and market conditions), dynamic bundling (offering discounts for purchasing related products), and an emphasis on unique value propositions can help retailers enhance the perceived value of their merchandise, ultimately helping to keep customer baskets full.

As anticipated tariffs could affect pricing, customers may remain focused on shopping for value and discounts. With historic credit card debt, alternative financing options may become more top of mind for shoppers to ensure they can obtain the products they want when they want them. According to LendingTree’s monthly Buy Now, Pay Later (BNPL) Tracker for December 2024, 35% of Americans reported they were considering applying for a BNPL loan in that month. Meanwhile, only 48% expressed confidence in their ability to pay off the loan without missing a payment.

BNPL provides an opportunity for retailers to ethically capitalize on short-term financing options, particularly during highly promotional cycles, to drive conversion and customer loyalty. Retailers should consider implementing new or revising existing BNPL programs that are flexible and transparent, with reasonable fees. Additionally, they might consider pairing these financing options with customer-friendly return and refund policies, allowing customers to adjust purchasing decisions as needed.

While omnichannel strategy has been a priority in retail for several years, the digital shopping landscape continues to evolve rapidly. The swift investment in and advancement of retail technologies, particularly AI and Generative AI, have heightened consumer expectations for a personalized, connected, and fast mobile-to-store shopping experience.

As mobile commerce continues to grow, along with the adoption of smart speakers and voice-activated technology, consumers are increasingly seeking voice-driven AI applications in retail environments to assist them in finding products and supporting customer service.

In summary, the 2024 holiday season was successful for retailers that planned diligently, marketed effectively, and executed with precision. Sales results indicate that consumers are spending more than last year, although trade policy changes could significantly impact product costs, pricing, and profitability in 2025.