Will COVID Kill Holiday Sales? Retailers Getting Jump On Season Amid Election, Coronavirus Uncertainty

Retailers are sweating out the coming holiday shopping season amid the coronavirus landscape, which is likely to keep brick-and-mortar foot traffic down but boost online sales.

“We are waiting for new data and are still assembling puzzle pieces for the 2020 holiday season,” said Jack Kleinhenz, chief economist for the National Retail Federation. “I am cautiously optimistic about the fourth quarter in terms of the economy and consumer spending, but the outlook is clouded with uncertainty pivoting on COVID-19 infection rates.”

Indeed. Infection rates have been increasing in recent weeks as cold weather moves in and flu season gets underway.

“The test is whether consumer spending will be sustained amid wildcard puzzle pieces, including policy surprises, the election and a resurgent virus,” Kleinhenz said earlier this month.

Among those puzzle pieces are employment levels. The Labor Department reported Thursday initial unemployment claims increased by 53,000 in the week that ended Oct. 10, pushing the number of first time filers to 898,000, a level not seen since August. The upsurge, which did not include figures from California, could portend a downturn in the economy and highlights the K-shaped nature of the coronavirus-induced recession, experts told International Business Times.

“By the end of year, millions more Americans will have run out of jobless aid and have no access to federal extended benefits,” noted Andrew Stettner, senior fellow at the Century Foundation. Extended benefits are due to expire Dec. 31 with agreement between the White House and Democrats on the next round of stimulus unlikely in coming weeks.

A Bankrate.com survey of economists concludes unemployment will remain elevated through the first half of 2021 while JP Morgan CEO Jamie Dimon said during a quarterly earnings call the economy is in danger of a double-dip recession.

Against that gloomy backdrop, however, Coresight Research predicted a 5% increase in holiday sales, with retail food sales up as much as 9.5%.

“We could see a potential multibillion-dollar switch from services to products, as consumers face reduced options for spending. In the holiday quarter of 2019, U.S. consumers spent over $400 billion dollars on air travel, food service, accommodation and recreational and cultural services,” Coresight said.

“Shoppers have fewer options to spend this year, but they have broadly the same options to spend at retail. As consumers’ choices to spend on dining out, travel, nights out and other leisure activities are unusually limited, there is an opportunity for more discretionary dollars to flow to retail.”

Coresight said consumers appear to be more inclined to buy premium products and were poised to spend the $400 billion withheld from the economy in the first eight months of the year. Additionally, holiday spending likely began this month rather than waiting for Black Friday, the traditional start of the holiday shopping season.

Amazon’s Prime Day sales Wednesday and Thursday topped $3.5 billion, up 60% from last year, and purchasers saved $1.4 billion. The company said it planned to schedule "Holiday Dash" deals in coming weeks, featuring Black Friday-worthy deals.

Target held its own Deal Days to compete with Prime Day, and Walmart held a Big Save event. Walmart also said it would spread Black Friday deals over three weekends in November to control crowds.

Nonetheless, Coresight predicted total retail sales in the fourth quarter would hit $1.1 trillion, excluding food-service businesses, automobiles and gasoline. The National Retail Federation pegged last season’s holiday sales at $730.2 billion, up 4.1% from 2018.

Coresight predicted the strongest sales would be in furnishings and home accessories, home-improvement products, gift cards, some electronics and small appliances.

Retail sales for September were up 1.9% compared to 0.6% in August.

However, Coresight is careful to say it does not expect to see a return to growth for apparel specialty and department stores although apparel sales, especially casual wear, should be strong.

Coresight predicted a 33.5% increase in online sales to $234 billion, accounting for a 21.7% share of all retail sales.

Both the NRF and Coresight cite the outcome of the Nov. 3 presidential election as a factor weighing on the holiday season, creating an air of uncertainty that may stifle spending. The absence of a new round of stimulus also could make consumers skittish. A third major factor is the actual number of shoppers who can be in stores because of social-distancing measures.

“If a retailer allows only a fixed number of shoppers to enter each store, the proportional impact will be greater in busier periods than in quieter periods of the year: A retailer would have to turn away more shoppers from its doors at holiday time than in the summer,” Coresight said.

For a successful holiday season, Coresight said, retailers need to capture early spending and convert that into sustained spending.