The Big Picture
In the last week of what turned out to be another roller-coaster year, we can help but celebrate the robust holiday season we’ve just had. Overall retail sales grew a robust 8.5% from November 1st to December 24th compared to last year, according to data from MasterCard Spending Pulse. What’s more, retail sales grew 11% over the same period in 2019.
And, the latest numbers we’re getting from our specialty stores show similar results, with many merchants beating their pre-pandemic sales.
This is particularly good news, given the indicators we saw in November, when overall sales grew modestly— up 0.3% from the previous month — as shoppers grappled with rising prices and some product shortages.
The November slowdown came after a healthy 1.8% sales increase in October, before the new Omicrom Covid variant was detected. We expected shoppers to become a little more cautious as headlines about the pandemic and inflation became more alarming, and it looks as though some did, given that U.S. consumer confidence fell to a nine-month low in November.
But, we believe the strong holiday season reflects a continued resilience in the market, even as we face a future that is a bit foggier.
While Omicron is currently causing trouble for airlines and travelers, and will no doubt cause staffing shortages across various industries, we are not seeing a widespread problem yet.
Given that we are going against weak sales numbers from January and February of 2021, many merchants will continue to have month-over-month gains for the first several weeks of the year. Of course, there will likely be exceptions in New York and other Covid hotspots.
Once we reach March, sales will probably flatten until we get into spring holidays, when brighter weather will spark sales. For Spring ‘22, we expect sales to be up by low, single digits compared to the previous season.
Heading into the second quarter, merchandise should become more available, which is both bad and good for merchants. It’s good in that you will have more options and deeper selections, but it could be bad if merchants return to their old habits and end up overbuying.
Remember, that even with lean inventories we managed to have record sales and increased our profit. In this environment we must stay alert and ready to shift up or down according to the changing demand curve.
If you have too much product and demand takes a dive, you could wind up with merchandise you cannot sell or have to discount. So, the goal for all our merchants in 2022 is to keep their margin levels up and their inventories right on plan. Here’s one strategy: If you can manage to exceed your planned sales by 10% to 15%, you can force your stock-to-sales ratios and extend your higher sell-through rates, delivering above average margins.
We expect the demand curve to return to a more predictable cycle in the year ahead, but we cannot say for sure when that will start. After all, we are coming off an unbelievable nine solid months of gains. At the same time, the pandemic has accelerated changes in the demand curve that were already present, such as the effects of longer warm weather in the summer and shorter winters.
The lesson in all of this is to stay flexible and prepared. We recommend that you take a few minutes this weekend to write a list of the 5 to 10 lessons that you learned in the last year. Keep this list close to you as you navigate 2022.
If you have any questions or concerns, please talk to your Blacks’ analysts so we can work together through the months ahead. Lastly, we’d like to thank you all for being part of our retail community. We can’t wait to jump into the New Year with you and make it the best it can be!
Blacks’ Bottom Line
Plan for a more normal selling season as we enter the second quarter, and beyond.