Why Retailers are Starting Holiday Sales in October

Guest: Karly Iacono
Topics: holiday sales, retail sales, retail trends

Transcript:

Chris Ressa 0:00
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management

Karly Iacono 0:24
welcome everybody to what’s in store the show where we discuss pressing issues the cross section of retail in real estate. I’m currently Iacono Senior Vice President at CBRE and I am joined by my co host Chris ReSSA. The CFO of DLC. Welcome, Chris. How are you today?

Ressa 0:43
I’m doing great. How are you?

Iacono 0:44
Good. Nice to see again. First episode of fall. hope everything’s well in your world.

Ressa 0:51
Yes, you go apple picking yet?

Iacono 0:53
Sunday. Yep, it’s on the calendar. long as it doesn’t rain. It is slated for Sunday. How about you?

Ressa 1:00
My family went I actually I got to go golfing when they were apple picking but I’m sure we’ll probably do it again. We are very festive. In the fall pumpkins and apples and gourds galore.

Iacono 1:13
I didn’t already decorate pumpkins. So that makes you feel a little better. So I’m all in as well. And I had the requisite Pumpkin Spice Latte. So it’s now officially fall.

Ressa 1:24
Excellent. So I’m not into the pumpkin spice lattes. I love coffee, just kick it in the pumpkin spice.

Iacono 1:31
Wow, that’s okay. There’s always room for improvement. We’ll get there. So today to everyone listening. Thanks for tuning in. Whether you’re listening to the replay, or you’re following us right now on LinkedIn live, we appreciate you joining us and spending a few minutes of your time to share thoughts. Today we are talking about to me what seems like an absurdly early crazy conversation. And that is holiday retail sales. Now normally, to be honest, I don’t really think that holiday sales is that riveting of a topic, but this year feels really different. So Chris, and I wanted to spend some time share our thoughts and few predictions on on this year’s retail holiday sales. So the first thing I’m going to say to kick it off is the timing. And this is what really spurred you know, the start of this conversation between Chris and I is that sales that were just announced by target and Amazon. So target announced, let’s see, October 6 through eighth, October 6 through eighth. I think that’s next week is the kickoff of their holiday season. And Amazon, of course, right on their heels said October 11 through 12. So it feels like Black Friday is almost a joke or an afterthought. And now we’re looking at the first few days in October as the kickoff for holiday sales. I think that’s bizarre. Chris, what what are your thoughts on that? And and then we’re gonna go into a poll, we’ve got a lot of good information for you. But first, what do you think of early October?

Ressa 3:06
I think from me, no matter what, I think the week leading up to Christmas, there is significant amount of people who rushed to go get things. And so I don’t think that ever changes. I think that if people take advantage of the sales that go on in October, even though they get something’s undoubtedly the psyche of the consumer, even if they got what they would have already bought the week before Christmas, they’re going to go buy something else the week before Christmas. And I don’t think someone I think very few people go like December 10 and say, I’m done. Even if they’ve already bought things in October. I don’t know about you. But since I’ve had children and my kids are five and four, I’ve never executed and been below budget on our Christmas shopping list. Never been below budget. And I actually think deals are going to make it even harder, because I think my basket size is going to be larger because we’re going to be going oh, that’s a pretty good deal for that. Let’s you know, we might not have got that but at that price, I’ll take it. So I think the starting earlier trend, and there’s a lot of political reasons with that too about Thanksgiving and whatnot. So I think overall, I don’t know what the impact will be. But I think overall my sentiment is you know in the beginning of the year, I was hearing a lot about consumer spending, inflation was gonna come down. And I think we’re gonna have a strong holiday season.

Iacono 5:11
You are every retailers dream, not only do you shop early, and then it doesn’t count you shop again. But you just do you think it’s going to be a strong holiday season. So to every retailer listening, this is your guy, right? Just follow Chris, all workout? In all seriousness, yeah, I think you made some very good points when you start early October, three months before the holiday, it almost doesn’t I think it psychologically may not count. I think you’re right, right. You’re gonna buy things and say, Wow, but I also could get XYZ. So I bet you’re about you’re right there. Yeah. So I want to share the results. I put up a poll yesterday, better late than never. And we got a lot of interaction, even though it’s only been up for about 12 hours. So if you missed the poll, head on over to LinkedIn on my profile, make sure you vote. So so far, we have 213 votes. And the question was, what is the biggest driver of retailers starting their holiday sales and promotions so early? So interestingly, the answers are pretty divided. So I’ll give you the numbers. And then let’s go piece by piece. So the first one was to improve supply chain concerns that got about 19% of the votes beat out the competition got 21%, clear excess inventory got 31% of the votes, or just or winner by a margin, and then hedge against a weakening consumer. So economic concerns, got 29%. And it’s probably all of these right together. But but let’s go piece by piece. The first one was improved supply chain concerns. So what are your current thoughts on where we are on supply chain issues? Do you think retailers are trying to get consumers to shop early because they can’t get that rush of goods in December? How big of a part do you think that plays in this

Ressa 7:02
potentially plays a part, if I were going to say based on my conversations of the four, I do think this is the the least given, you know, most retailers bought for Christmas A while ago, they were ordering super, super early. That’s one of the lessons from the pandemic is to order early. So I what we’ve been dealing with in 2022 is more on the excess inventory side, not as much on the lack of product side. As it relates to supply chain. I think we’re dealing with different issues. As it relates to supply chain, you know, every one every other retailers reported significant increase in transportation cost. And that was a huge margin hit for some of these massive some of the chains out there. So that’s kind of where my head’s at on supply chain.

Iacono 8:02
Okay, so maybe that was a really an impact from two years ago. That’s not the main driver. Now, it’s probably still a bit of an inconvenience, but we think not the number one thing and focus right now.

Ressa 8:14
Yes, for me.

Iacono 8:16
So yeah, I’m hearing less about supply chain issues. I would have to agree with you on that. And I think the conversation has been more about the buildup of inventory, which you just touched on. So let’s jump to that one. You know, there, there was all of this advanced ordering, because things were so backed up, the shelves were bare, and now you have a lot of product that isn’t moving at the same level. But my question is, is that the right product? And I guess we won’t know until the end of the holiday season. So if you have a buildup of inventory, is that the inventory people want for holiday shopping? Or is that more seasonal? Like what is that excess inventory look like? And how reusable is it?

Ressa 8:56
I think it’s across the board. I mean, my, my mother in law is an amazing shopper around, you know, she’s come over with Halloween calendars in on Easter, and, you know, Christmas stuff in July because, you know, forever retailers end up with some excess inventory and they have to clear it out and we see clearances and the savviest of shoppers, they take advantage and they’re they’re good planners, right? They’re good planners. So is it the wrong inventory for the person who is waiting to the week before Christmas? I think some of that inventory might be but I don’t think there’s going to be this lack of up appropriate holiday inventory. I think you just might have some there is some excess inventory of other things and you know, I toured some retail stores Over the last couple of weeks, and, you know, I was in a clothing store looking for shorts, and they were gone. They were gone. The it was pants and long sleeves. So you know, I think anything left over, I think how much and you’ll see it in the numbers in in the as retailers report where inventory stands. But I think, you know, psychologically retailers, the lesson that they learned was this inventory control. And they’ve always known this, they’re really good at this. But, you know, inventory control was certainly a hot topic. And we had, you know, quote, unquote, excess inventory. So I think inventory control is such a hot topic, especially in the walls of retailers. And getting caught with goods that you can’t sell is such a hot topic that I think, you know, clearing it out, especially as there’s inflation pressures, clearing it out is of utmost importance.

Iacono 11:11
So maybe this is really more of a marketing strategy than a true holiday sale. Because what it sounds like is they need to clear out inventory to get ready for the holiday season. But the way it’s being marketed to consumers is the holiday season starts now. So I think, you know, that’s a distinction that maybe is really just marketing driven to get consumers to start shopping now. And really, it’s it’s kind of like a dead time right back schools already happen. We’re not in the holidays yet, like, what you really need to shop for in October, right. As far

Ressa 11:43
as Yeah, but I think you will. Maybe that’s a part of it. But I think you will see, if you wanted like your Christmas, I think you’re going to be able to target to buy your Christmas presents. In a in a waiting, I think you’re going to be able to

Iacono 12:00
Okay, so it’s not just leftover summer inventory, you think they’re they’re clearing out, but they’re also building up the body and stuff, and they are really kicking off holiday season. It’s not just a marketing ploy.

Ressa 12:12
Yeah, I think I think the, you know, the consumers, the inflation and consumer spending is also top of mind, and there’s this, you know, how much holiday I can do as long as possible is clearly here.

Iacono 12:37
And that’s really the next point, right? That we have these economic concerns, we have a potentially weakening consumer because of inflation, so their money doesn’t go as far maybe they’re stretched in other areas, if there’s less to spend. So I think there’s this element of let’s capture these dollars now before they’re gone. And let’s beat out the competition, really two separate things. And let’s try to get to the consumer now when maybe they’re going to be stronger than they will be in three months. Hope it’s not that drastic, but it feels like there’s a shift, obviously, economically, that could impact how willing people are to spend, how real Do you think that element is?

Ressa 13:14
I think that elements real? I keep then what’s it, it’ll be interesting?

What consumer sentiment and spending looks like in q1, because, you know, really strong August numbers back to school. And they haven’t all come out yet. But if you saw August was strong, and then you know, I just saw Deloitte put out something like a day or two ago that is, you know, predicting really strong holiday, I posted something on LinkedIn about MasterCards predicting, you know, 7% retail growth. And so the consumers been super resilient. How long can they be resilient? I don’t know what’s, you know, the psyche of all consumers and, you know, but we still have some, as much as the inflationary pressures and some calling for the weakening consumer. There are some tailwinds that are keeping the consumer strong. So, we’ll see. I think one of the things that’s interesting, I think we’re, you know, 2023 we’re going to talk about product a lot. Because, you know, I’ve seen some people talking about it, but it’s not being talked about enough is on the non discretionary. I mean, the stuff not the stuff that’s everyday needs, but on the other stuff, you know, everybody have bought so much in 2021 and 2022. What does somebody need? What don’t they have anymore? And I think that’s interesting. I mean, Americans always find a way to shop

Iacono 15:12
will come up with new needs.

Ressa 15:14
But for sure, but I think there’s gonna be an interesting product discussion in 2023. And I’m really curious to see what the products landscape looks like in 23. So outside of, you know, non discretionary.

Iacono 15:32
So I want to go back to the Deloitte Report that you mentioned, because I saw that as well. And it’s a great data set, like their information usually is. So one of their stats was their predicting holiday sales growth of four to 6%. This year, which is about 1.45 to $1.47 trillion in holiday spending some very big numbers. But when you look behind that, how much of that and I don’t have the answers, it’s more just for discussion, do you think is due to inflation? Right? Is this because we’re paying more for the same goods? Are we actually out buying more? Because if it’s just inflationary pressure, that’s not really an indicator of holiday sales growth? Like consumers? Not necessarily, that doesn’t mean that consumers healthy and wanting to spend more, it means they have to because of inflation? So I think there’s a different right, two different ways to really interpret that data.

Ressa 16:25
I would I might take the opposite position, which, as How, how strong is it for the retailer? I think it depends on the product they’re selling, how much they’re able to pass them on to the consumer, I think some of its getting passed along. So there’s real growth in there in a lot of places more than meets the eye. I think, from a consumer perspective,

you know, how much do they need to spend on some of this stuff? I think that the, the consumer is saying that they can spend it and they are durable, because they are doing it. And we’ll see if Deloitte and MasterCard are right delay was four to 6%, MasterCard 7%? I, I think it does say that you have a healthier consumer because they can, you know, because we are spending more, it’s meaning they they have more money to spend.

Even if they’re even if they’re getting less, that might be a detriment to the consumer, they’re getting let their money’s not going as far. But they’re still able to spend more money, I think, I don’t think that’s uninteresting.

Iacono 17:47
So that really could be the win for the retailer, maybe not the consumer, right? Because they’re getting more for each product, depending on how much it’s costing them goes back to cost of goods sold.

Ressa 17:58
The only thing I would say to that is, all we keep talking about is how there’s going to be a lot of discounts and promotions, that’s going to lead the way. So I think there’ll be a lot of interesting studies on the price of one product in November of two point on December of 22, versus that same product in December of 21. Because not withstanding inflation, we’re talking about discounts.

Iacono 18:31
And that likely will drive a lot of the purchasing power, like you said, initially. Now I have seen some research saying kind of the opposite. We just read a report that said 43% of consumers plan to spend less this year. Now what I like about that said is it’s planned to spend less so to your point, you know, you’re gonna shop in October, then it comes to be December 20th. And are you are you still gonna go buy more even though you’ve already done your holiday shopping? Right? Because you did it so early. So I wonder how much of that is?

Ressa 19:02
I didn’t know ready families who stick to that budget like Right, right. So I’m glad I just I would love to meet the one that like show me the Excel of the person who said they were going to spend 100 And they spent 97. Like already

Iacono 19:17
3% of people they’re saying less than last year? I don’t know. I don’t know. Are they being honest? are they hoping they spend less? Are they? are they actually going to spend less right? Everyone hopes to spend less. There’s also a lot of you know, socio economic factors at play here. If you are stretched on your budget, you’re really struggling with the high gas prices, which thankfully have come down somewhat but are still high, high food prices off the charts like you’re really trying to make it work for your family and you haven’t seen that wage growth. You might not have a choice, right? This really might be a real crunch time. So I think it depends on maybe what group we’re talking about and how they’ve been impacted in the last year. Totally Lesson. Yeah.

Ressa 20:02
Yeah, totally. I think one of the things I think it’ll be interesting is, you know, a lot of people you know, emotion plays such a big role in. And purchasing. And I think one of the the interesting things is, while I think everybody has this desire to save, everyone’s got this desire to save. But there’s so many compelling things out there marketing, that retailers do a really good job of pushing people to spend. I mean, and I think, whether that’s social media marketing, whether that’s, you know, whether that’s TV marketing, and I think, you know, from a physical retail space, I think the shopping centers are more inviting than they’ve ever been their lease stop, there’s new concepts. It’s exciting to shop again. And there was a time when

shopping was really an event and exciting. And I think we lost that. And now, I think, you know, retailers and landlords have reinvented shopping centers, they’re still being reinvented with brought in new concepts, the retailers, remodeled stores, landlords invested in properties, they look cooler and nicer. There’s all these new things. And it’s exciting to shop again. And I think that is a really compelling way to get people to spend.

Iacono 22:06
Forget all the the food and the entertainment, and it becomes an outing to your point.

Ressa 22:11
Yeah. And I think long ago in the 80s, and the early in the 90s. You know, that was always the mantra. And then, as ecommerce came, there was this psychological of at shoppings a chore. I the chores coming out of shopping, and the excitement is here, whether it was being cooped up for a year or two, however long you were stuck inside, whether it was this new, reinvigorated retail landscape, whatever it might be new product, shining. shoppings exciting again,

Iacono 22:51
it is. Now I’m gonna remind you of this after you go shopping in December, and you wait in a line that is 45 people long to check out this this exact quote, I’m gonna say remember, Chris, you said shopping was really exciting. It’s not a chore. No, I’m kidding. And that’s part of the holiday craziness. Right? But I think you’re right, just being around people being in an environment, exploring new stores, you’ve never been in getting to eat a great restaurants, which are legitimately really fun and interesting in a lot of the renovated centers. So I think it has changed the experience. So a great. So the last thing I want to touch on before we wrap up today is the labor piece of holiday sales. So this is an interesting one, right? We still see this in restaurants. We’re seeing it in retail locations right now there is still a labor shortage. So how do you think holiday hiring is gonna go? And will that have an impact on holiday sales? Are people going to put up with longer lines? If like I just mentioned, if there’s less checkout people, are they going to get frustrated and not chop as much? What do you think the labor implications will be?

Ressa 24:02
Your guess is as good as mine, I think, I think that labor is going to be a challenge. Fortunately, I think many of the retailers have been preparing for this for a while, and they’re doing what they need to do. I think it’s a challenge in all fronts, right? I’ve already looked at on the shipping side drivers and you know, people in warehouses at the store level, Labor’s just a challenge. I think that retailers will figure this out. Will it be whether will I have an order online that says it won’t be here till February? Sure. I was already looking at something that’s not available to fit You worry, wow, looking at it yesterday, so easy. So and then I’m sure in a month, if you ordered that you’ll get something that’s it moved to March. So as a specified special product, but still I think labor is going to be a challenge. I think overall, I think retailers will solve it. I think it’s better headline news than anything, but I think retailers have been planning about it for a while. Okay,

Iacono 25:33
so maybe it won’t have such an impact. I don’t think we’ll know until holiday hiring starts, which is likely now, right? How much of an impact it really is. But hopefully it won’t impact sales and still be successful holiday season. I think it’s one more thing to watch for sure.

Ressa 25:51
Another note back to the last one. The other thing is there was a ton of leasing in retail centers this year where stores weren’t open till next year. And I think the shopping experience is only getting more exciting and more interesting. So I think that’s a tailwind against headwinds in the consumer spending for 2023.

Iacono 26:22
Interesting, so jumping ahead when you don’t have the holidays as a draw to get people into the stores. Because of all of the you know, magic that creates. You have new concepts, you have new stores opening that couldn’t quite do it by the end of 2022. Yeah, that’s great. Well, let’s end on a positive note. For everyone listening we are clearly very excited about retail, holiday seal sales. And I think everything in our industry just keeps getting more and more interesting. So thank you for tuning in. Chris. It was great to see you at all. See you again. And for everyone listening that was what’s in store. We will see you again next month.

Ressa 27:12
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