Flexe Institute Market Watch: The Death of Black Friday

November 8, 2022

Shoppers expect earlier and longer lasting deals this holiday shopping season.

Market Watch Collage Nov22 1

Retailers and brands with excess inventory will oblige.

Key Takeaways

  • 46% of consumers began holiday shopping before Halloween
  • 40% say inflation will affect holiday purchases
  • 4-6% projected peak season retail sales growth
  • $8B in gross merchandise volume during Prime Early Access
  • 2.9% Q3 industrial vacancy rate

Post-COVID, holiday shopping is different. Peak season still drives significant revenue. But Black Friday isn’t a singular event. Promotions last throughout the fall. And consumers shop earlier.

Holiday shopping starts earlier #

Retailers with bloated inventories, leftover from pandemic demand, created promotions to clear excess stock. Many promotions started as the summer closed and will continue through the holidays.

Events like Amazon’s second Prime Day of 2022 and Target’s early Black Friday promotions pulled spend forward. Forty-six percent of consumers started holiday shopping before Halloween.

The shape of the holiday season will look different this year, with early discounting in October pulling up spend that would have occurred around cyber week,” said Patrick Brown, vice president of growth marketing and insights at Adobe.

The shape of the holiday season will look different this year, with early discounting in October pulling up spend that would have occurred around cyber week,” said Patrick Brown, vice president of growth marketing and insights at Adobe.
Patrick Brown, vice president of growth marketing and insights at Adobe

What to expect this peak season #

As economic conditions deteriorate, consumers aren’t on track to hit COVID holiday sales growth precedence. Forty percent of shoppers cite inflation as a threat to their purchasing plans.

Total spend won’t increase drastically
#

Retail sales will increase between 4% and 6% in 2022. eCommerce sales will grow by 12.8% to 14.3% YoY.

However, these figures don’t take higher prices for consumers into account. As a result, early spend figures aren’t as strong as some hoped.

The average order size during the Prime Early Access sale in October was $46.68, down nearly 23% from Prime Day in July. The October event generated $8 billion in gross merchandise volume, a 25% decline from $10.7 billion in July.

Overall, unit sales will be stagnant and keep inventories elevated. Retailers and brands will continue slashing prices, rid excess stock and right size inventory levels.

Bifurcated peak season concerns #

Inventory surpluses are a longstanding concern for shippers. Brands over purchased after months of stockouts, which led to an inventory stockpile.

Despite corrective efforts, many haven’t rid themselves of inventories. Nike recently reported a “surge of 65% year-over-year in North America inventories and a spike of 85% in its pipeline of goods in transit.”

Many others report similar situations as Q4 begins. VF Corp. reported its inventories are 88% higher than this time last year.

However, many supply chain leaders cite opposite problems. Six in 10 logistics professionals worry about inventory shortages and 82% feel similarly about missing delivery windows.

Some lower velocity items will remain slow to sell while others won’t be in stock in time for peak season.

Warehouse capacity remains tight through Q4
#

Excess inventories occupy valuable industrial real estate. As holiday inventories peak, capacity will remain tight, especially in primary markets. Most retailers ordered their goods earlier in the year when economic conditions were better.

But, following Q4, capacity will loosen. According to CBRE, the Q3 industrial vacancy rate remained at 2.9%. But others show it loosening slightly to 3.2%. According to Cushman & Wakefield, it was the first increase in two years but below the 5% average pre-pandemic national vacancy rate.

New construction outpaced net absorption for the first time since the pandemic, signaling more capacity will soon be available.

According to CBRE, the Q3 industrial vacancy rate remained at 2.9%. But others show it loosening slightly to 3.2%. According to Cushman & Wakefield, it was the first increase in two years but below the 5% average pre-pandemic national vacancy rate.

Shipper peak season strategies #

Offer multiple sales channels #

One in four U.S. and U.K. shoppers said they will leave a site if shipping options are limited or they don’t have a buy online pick-up in store option (BOPIS).

Minimize inventory holding costs #

Brands with excess inventory look for ways to reduce inventory while they assess demand generation strategies.

Invest in network flexibility #

Leading companies diversify networks to build resilience, mitigate risks and control costs.

Brands that incorporate structural supply chain flexibility stand to benefit in 2023. Companies that avoid long-term contracts benefit from next quarter’s looser capacity and lower rates.

Market watch: The logistics industry month-over-month #

Logistics Managers’ Index (LMI) #

Last month, the index fell again in all categories aside from warehouse capacity and prices. The metrics suggest the industry continues to expand and warehousing space remains tight.

Flexe Market Watch November Charts 01 Graph 2

Disposable Income vs. Durable Goods Spend #

Durable goods consumption and disposable income are intertwined. This month’s data shows that personal consumption rose, while disposable income fell. Continued consumption predicts the need for logistics services. But continued disposable income decreases will lead to less consumption.

Screenshot 2022 11 03 123601

Industrial Real Estate Vacancy Rate #

The lower the rate, the more difficult it is to find warehousing, distribution and fulfillment space. The market currently operates at an all-time low of 2.9%.

Graph 4

U.S. Manufacturing Purchasing Managers’ Index #

The index captures industrial output in the country during a given period. Like durable goods consumption, it provides context for demand forces: The higher the manufacturing index, the more volume enters logistics networks.

This month, the index fell. This indicates potential for economic contraction.

Flexe Market Watch November Charts 01 Graph 1 1

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