The two weeks after Black Friday weekend tend to be a dip in holiday spending, as the shoppers who came out during that weekend regroup and the procrastinating shoppers who did not begin to feel anxious or maybe slightly panicked about their holiday shopping lists.
But developments in and around the retail industry continue, whether consumers are shopping or not. Recent economic indicators and tech developments reveal the continued mixed bag of positives and negatives.
Consumer Spending Economic Indicators
Payroll data delivered positive news, as the US Bureau of Labor and Statistics released nonfarm payroll data for November. Job gains of 199,000 were in line with economist expectations, but unemployment ticked down to 3.7% – better than expected. Most of the gains were in healthcare and government jobs, though employment also got a boost from the end of strikes in manufacturing and entertainment. Overall, retail trade employment fell, which is interesting given that November would be prime on-boarding time for temporary retail staff. Average wages increased 0.4% monthly and 4% year over year, which was high enough to not have the gains entirely eaten by inflation, and not so high as to stoke additional fears of inflation.
ADP also released its National Employment Report, and added that private companies added 103,000 jobs in November, with the same uptick in health services employment. Their data also showed that, while it was uneven across all company sizes, generally speaking hiring was not limited to any specific company size – gains fell across small, medium, and large companies.
On the inflation front, prices are falling in durable goods, which is where you want them to fall, but these purchases may still be hampered by high interest rates, even at a lower price. Right now, so far, the fall in prices on durable goods could potentially help lower inflation to the Fed’s target of 2% by the second half of 2024.
Also contributing to potential falling prices, CVS announced that they are revamping their prescription pricing in response to competitive pressure on drug pricing models. Thank you, Mark Cuban. Also, when will Walgreens make their announcement?
Inventory still seems to be under control at most retailers, which means they expect solid sell-through during the holiday season and still are not expecting to run heavy promotions. The only exception is luxury, which seems to be sounding some alarms about the expected pullback on consumer spending, even more so than discount retailers.
As far as whether consumers still feel okay about their financial situation, one component of that is definitely related to the value of their homes. Redfin chief economist Darryl Fairweather says that the housing economy should get much better in 2024, pointing to an expected reduction in interest rates which will lead to an increase in home sales in 2024. Home buying fees will go down (thanks to that lawsuit over realtor commissions). A glut of smaller rental units will drive prices down, and many consumers may find it more economical to rent, at least for the short term. Additionally, “boomerang migration” seems to be happening across 3 areas: people moving back to cities to get back to work, people escaping towns expected to be hit by climate crisis, and children returning home to boomer parents to save some money. While this will help consumers cope with housing cost pressures, it will also force retailers to stay on their toes around store location decisions.
That was a lot of activity in North American markets, but a lot is happening around the world too. While the UK market has been particularly constrained, it may lose its crown as the hardest hit economy in Europe, thanks to Germany, which is a bigger economy and more integral to Europe’s overall economic health. Germany seems to be headed for an implosion after the court ruling that upended the government’s budget and plans for 2024. A survey of 5,000 business in Germany showed that many are planning on cutting investment plans and retail is going to be the hardest hit, mostly because they don’t really have the same options for hedging against expected increased costs. Manufacturers are looking to relocate in order to avoid a big increase in energy costs, for example, while retailers are pretty dependent on the locations they already have.
When you take this with all the news coming out of China and India, the current score sits at India as a hot market for organized retail expansion, China as totally not, the UK maybe not as bad as it was, just in time for Germany to go down in flames and hopefully not drag the rest of Europe with it.
Why Online Needs Stores and Vice Versa
Much was made over the strong growth in eCommerce sales over Black Friday weekend, but I maintain that it is increasingly irrelevant where the sales growth comes from, because stores and online are inextricably intertwined, and retailers are investing to make that integration even tighter.
This story about ghost kitchens caught my eye because I think it offers some insight into why retail stores in general are important. The gist of the story is that ghost kitchens are closing because consumers are confused by them. Why are they confused? Because they don’t have any real location. They either are a kitchen only with no front of house service at all, or sometimes are even co-located at another restaurant, again, only for delivery. The lesson to take is that there is a very distinct tie-in between online and stores, where the physical location gives consumers confidence in the online presence.
Also supporting the 1+1 = 3 story of online and stores, eMarketer published survey data that showed that 31.5% of shoppers who discover something in a store purchase it right away. When you consider that the conversion rate in stores is usually in the 25-30% range, this feels about right. Contrast that with the 3-5% conversion that happens online, and you can see why stores remain a very important part of the shopper journey.
Finally, the Wall Street Journal predicts that there will be fewer, larger stores that will all look like flagship stores, as retailers look to add experiences and services to stores. They profiled a bunch of stores in London, which doesn’t necessarily support the whole “all stores will be flagship stores” example, since London, like Manhattan, tends to be the home of all flagship stores all the time. Figuring out how to bring the flagship experience to main street / high streets everywhere is the biggest challenge around omnichannel store redesign. I don’t think anyone has cracked the code yet, but many are trying.
Retail Tech Developments
This research about GenAI and productivity has been hanging around for nearly a month now. Of course every analyst and consultant has been rushing to publish articles about “the top use cases in retail” and all of that. I have not participated, in part because I have reservations about how much is hype (overhype) and how much is real. This research confirms one of two main suspicions that I harbor – which is, that while GenAI can boost productivity, it has a maximum in what it can actually do.
GenAI is trained on the internet. It doesn’t distinguish between content that is below average and content that is above average (and some of that is subjective anyway). What you get is a model trained on… average. So, as the research shows, high performers don’t really benefit, and the best GenAI can do for low performers is… average. And then, if everyone uses it, everyone is going to be pointed to “average”. High performers might recognize that they can do better – that’s great. But, to quote Syndrome from The Incredibles, “When everyone’s super, no one will be.” I guess the other piece of this puzzle is, if you claim that GenAI has really helped you, what does that say about you?
My other suspicion is that, as more and more GenAI content gets unleashed on the internet – which is the source of training data for GenAI – we’ll end up with some version of generation loss. When all these companies need to go out and find real, confirmed human output to train their models, maybe they’ll find they actually have to pay them for that real, confirmed human work? Still waiting to see how this one plays out.
In other retail tech news, a research report from RSR Research dove into retailers’ use of wifi in stores. I’m interested in this data because so much of what goes into stores these days has to be mobile, and I’ve seen some bad/weird behavior from retailers related to wifi and just general store connectivity. While retailers have (grudgingly) increased the bandwidth to stores, and readily acknowledge that stores need more real-time access to more information than ever before, they would still bottom out all connectivity to and within stores at the drop of a hat if they could – which tells you just how much (little) they really value digital’s role in stores and vice versa. Sigh.
Possibly related to retailers’ lack of enthusiasm over store connectivity, an update on trends to expect in cybersecurity also came out this week, notable because it was compiled based on reports by hackers. It’s a reasonable list: more AI, more amateur hackers (in part because AI makes it easier to get in on the game), biometrics alone aren’t going to be enough to protect data, and my favorite – inflation has hit cyberthieves too, with prices up on stolen customer data on the dark web. Which just goes to show that no one can escape the impact of inflation.
Dan Berthiaume at Chain Store Age pointed out that Black Friday weekend was more mobile than ever before, but also that curbside pickup was a non-event. It was such a non-event that I even forgot to see if anyone was offering it or encouraging it! Outside of grocery pickup, is curbside officially dead yet? I think it is.
Peacock and Instacart announced a partnership, where Peacock Premium will be available to all Instacart+ members (the only thing we’re missing here is a “one” or a “max”). Progressive Grocer bills Peacock as Instacart’s “first ever streaming partner,” implying there might be more. Could this be an attempt to piece together an offer that can compete with Amazon Prime? Instacart has a ways to go, if so.
And finally, in what may become the AR experiment du jour, Coach has an AR try-on screen in a handful of stores through the holidays. It wasn’t clear – it may require an iOS app to use it. The fact that it is there for a limited time, with a focused use case, is more promising than the Macy’s Disney magic mirror that I previously covered. But still so meh.
One Last Data Point on Holiday Spending
I’ll leave you with one last data point, especially if you count yourself among those procrastinating shoppers that haven’t started yet. Statista released a ranking of the most desired gifts from US consumers based on a November survey of 1,000 respondents. What is the most desired gift? It’s money. And if it’s not money, it’s gift cards. Happy shopping!
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