KPMG’s Outlook For Holiday 2022

KPMG recently published its survey for holiday 2022 and presented an estimate for holiday retail growth this year of 4.2 percent – down from a 14.1 percent increase in 2021 reported by the National Retail Federation last year. While a much smaller gain than seen in 2021, most retail executives still expect holiday sales to improve, with 68 percent of respondents to the survey projecting increased sales compared to only 24 percent expecting a decline relative to last year. All of this is summarized in the opening of a 30-page study KMPG released this morning.

It is interesting to note that expectations for year-over-year change in holiday sales is not being driven by retail subsectors; rather, all sector groups other than department stores are anticipating improved holiday sales this year according to the study. The report highlights that “buy online, pick up in store” (BOPIS) and shipping from stores are both expected to grow their share of omnichannel fulfillment while drop shipping is expected to decline slightly. Nonetheless, drop ship will remain the most common delivery option. This is a direct reflection of the growing importance of DTC companies.

Roughly half the respondents expect to see increases in both physical store (51 percent) and e-commerce traffic (50 percent). Not surprisingly, the report notes that retailers are significantly more bullish than industry analysts about increases regardless of channel. That is typical in the retail industry; retailers have a tendency to be bullish since they always want to beat last year and buy merchandise to support their growth plans. In my estimation, there is a risk many will buy too much and create new markdowns of merchandise that will be in sales for post-holiday events.

Sales and Promotional Strategies

Retailers estimate their marketing spending during the holiday period will be about 30 percent of their total budget, down from about 36 percent last year. What that means is that almost all respondents to the survey plan to spend a smaller share on marketing during the holiday than the percent of annual sales they generate during the period.

Roughly half of the respondents (47 out of 95) spend over 50 percent of their holiday marketing dollars on digital campaigns. In fact, 75 percent of respondents plan to increase their holiday digital budget this year; at the same time, 40 percent will increase their non-digital marketing budget and 37 percent plan to increase both digital and nondigital marketing budgets.

56 percent say they will be open on Thanksgiving Day, while the remaining 44 percent will close all stores. Regardless, most plan Black Friday sales (85 percent) and Cyber Monday promotions (82 percent). Note that this is down slightly from last year in both cases.

Overall, a large majority of respondents say they will be more promotional than last year (73 percent). That reflects a greater share than what we saw in 2021 over 2020 when only 68% expected to increase promotions. However, one must remember that in 2021 the pandemic caused by COVID 19 was just abating.

Retail Operations

Temporary labor force increases are the most likely change to store operations this year. 48 percent of respondents indicate they will be adding more temp staffing, followed by increased bonuses (38 percent), and then increased hours (36 percent). The survey notes that temporary labor force increases are expected to be less common in a company the more stores a company operates, decreasing from 57 percent for less than 50 store companies to 44 precent for greater than 500 store companies.

With bullish strategies still somewhat tempered by concerns over economic challenges, 70 percent of respondents expect some shortages of holiday inventory for their key categories. But there is a big difference across businesses; companies with above average share of holiday sales were almost twice as likely not to expect shortages.

While 77 percent of respondents expect delays in inventory receipt, 44 percent expect delays that could extend two or more weeks. However, respondents with above average share of holiday sales expect shorter delays.

After all is said and done, 56 percent of respondents are planning for inventory “hangover”. Clearance sales and cutting receipts will be the most popular actions taken to mitigate this situation.

Recession Considerations.

Almost all respondents (92 percent) are expecting a recession in the near future. 71 percent say the recession has already begun or will occur in the next 12 months. 81 percent of the respondents say the recession will be rather short, a year or less, and none expect it to last more than two years. The most common action retailers plan to take to deal with recession “headwinds” is to reduce indirect expenses (52 percent). Other actions include investing in customer loyalty programs to retain traffic, reducing inventory, and reducing direct expenses (42 percent).

I spoke with Mr. Sundar Ramakrishnan, managing director and leader of the KPMG consumer and retail research team about all of this. He told me that the research was done by a third party and that KPMG has no specific knowledge about which retailers participated in the survey, othering than knowing they reflect a broad mix of players. He also told me that the survey would be posted on the KPMG site. He also pointed out that I should remind my readers that the supply chain had many delays in 2021 which delayed shipments to retailers that still linger.

POSTSCRIPT: The KMPG survey is of great value as retailers review their plans, investors assess the growth potential of their holdings and manufacturers prepare for the season. It is not likely that the industry will buy extra merchandise as this uncertain season approaches; rather buys will be carefully managed in hopes that sell-throughs will keep clearance levels manageable. Shoppers will have to shop early in order to find the right color of a tie or a specific garment in many cases. Readers interested in more details should review the report as it goes into great detail about the many industries that make up the retail spectrum.