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10/20/2020

Closed for Thanksgiving, But Does It Really Matter?

Retailers opening on Thanksgiving Day may be a thing of the past as several announce that they will not open on the holiday this year. Retailers such as Best Buy, Dick’s Sporting Goods, Kohl’s, Target and Walmart will have ‘closed signs’ posted on their store fronts, as many cited similar reasons as Walmart for the closures:

“We know this has been a trying year, and our associates have stepped up. We hope they will enjoy a special Thanksgiving Day at home with their loved ones. We are certainly thankful to our people for all of their efforts.”

-John Furner, president and CEO of Walmart U.S.

Indeed, it has been a trying year for Walmart as well as for the rest of the retail industry. In the past, Thanksgiving marked the unofficial beginning of the holiday shopping season as many retailers enticed consumers into stores with special Thanksgiving Day only sales.

However, this year has truly been unlike any other year as COVID-19 has gripped the entire world and consumers are hesitant to return to stores. According to Adobe’s Digital Economy Index, U.S. e-commerce jumped 49% in April, compared to the baseline period in early March before shelter-in-place restrictions went into effect. For May, Adobe reported that total online spending in May hit $82.5 billion, up 77% year-over-year.

In an otherwise dismal retail environment, the one growth spot this year has been e-commerce. While physical stores may be closed on Thanksgiving Day, the likelihood that retailers will be offering Thanksgiving Day online sales is high.  However, retailers need to keep costs in mind when offering these online sales because they will come with increased shipping costs.

In 2019, Adobe Analytics reported that Thanksgiving Day online sales totaled $4.2 billion, up 14.5% from Thanksgiving Day 2018. In addition, 45% of the 2019 Thanksgiving Day online sales happened on mobile, a 24.4% increase.

A recent consumer insights survey by Radial found that shoppers do not plan to significantly change their holiday spend compared to 2019. However, the data did reveal a stronger preference for online shopping, with 66% of shoppers anticipating they will increase their online purchases during the 2020 holiday season.

In anticipation, Target, for example, is preparing for a “very different” holiday shopping season due to the COVID-19 pandemic. It plans to offer holiday “lowest prices of the year” deals in stores and online in October rather than waiting until later in the season. In addition, by this fall Target will make an additional 20,000 products available through its pickup and delivery services, including fresh and frozen groceries.

One strategy that store-front retailers will take advantage of this holiday season will be buy-online-pickup-in-store (BOPIS). According to Adobe, BOPIS increased 35% during the 2019 holiday period. Shoppers used the option most frequently during the seven days just before Christmas. Indeed, during the early COVID-19 period, in April, BOPIS orders increased 208% compared with the year-ago period according to Adobe data. Despite many stores not opened, many introduced curb-side pick-up for online orders.

For small parcel carriers, planning for this year’s holiday season, aka peak season, is more difficult than usual. FedEx and UPS have struggled to meet consumer demand throughout COVID-19 and at times have been overwhelmed with unexpected increases in volumes and delivery delays. Whether or not they will be ready for the holiday season is a big question. They are balancing the needs of consumers and the safety of their workers as many other companies are during these unprecedented times.

What is certain are surcharges. Temporarily, COVID-19 surcharges remain in place for both carriers and as peak season draws closer, peak season surcharges will be implemented as well. In the past, there has not been a question of whether peak surcharges would be implemented, but rather how much small parcel carriers would increase surcharges. This year, retailers will question if the COVID-19 surcharges will be combined with holiday peak season surcharges or if they will be replaced by them.  In addition, small parcel carriers have waived service guarantees.This will make retailers question whether or not to even offer expedited services to consumers. If Amazon does not topple the retailers this holiday season, the peak season surcharges combined with the temporary COVID-19 shipping surcharges (if they are still in place) may likely do it.

The 2020 holiday season will be an all or nothing period for many retailers. Because of the anticipated increase in online ordering, managing shipping costs will be even more critical than ever before. Residential shipment costs, in particular, bring a heftier price tag for retailers, which could result in higher prices for consumers.  All of these factors combined make the 2020 holiday season the ultimate balancing act for many retailers.

-Melissa Runge, vice president, analytical solutions, Spend Management Experts