Retailers did better in the holidays than expected, but it’s unclear what will happen in 2019

Retailers’ survival is heavily dependent on how they navigate the challenges of the past 18 months — and on making decisions now that could be critical to their future.

The percentage of sales that are driven by frenzied promotional activity declined for retailers in the November and December holiday shopping period, the National Retail Federation said Thursday. And it was for a reason — consumers responded to bigger price cuts, so outlets had to markdown even more in order to clear unsold stock.

Retailers’ demand for new inventory continues to grow. Their hefty inventory levels are a result of store closings, bankruptcies and reduced physical store footprints because of an increasing online presence, NRF Chief Economist Jack Kleinhenz said in the report.

E-commerce now accounts for nearly 10 percent of sales for many retailers, with the top 10 leading e-commerce companies each generating 40 percent of sales from e-commerce. That means that the entire U.S. population drives 10 percent of retail sales, Kleinhenz said.

Based on preliminary data and NRF projections, 2018 revenue was up 4.1 percent for the most recent holiday shopping season. But the future is far less certain for retailers, and there is increased political and social unrest. Retailers’ stock prices have been falling since the start of 2018, and employment at the nation’s chains is at its lowest level since before the recession.

“Retail must still leverage their data, adapt to shifting consumer preferences and develop deep-rooted omnichannel strategies that can serve as an anchor to their future success,” Kleinhenz said.

NRF Chief Executive Matthew Shay said that while sales in stores and online were relatively equal in the 2016 holiday season, customers spent a greater percentage of their spending in stores that year, largely due to Black Friday discounts.

But in the most recent holiday season, that balance was the inverse. Black Friday was the single biggest day for in-store sales this season, with customers spending $217 million on-line, compared with $481 million at stores, NRF said.

Kleinhenz also said that department stores, which compete with large discount stores, suffered a more pronounced decline in revenue. On the bright side, shoe and clothing retailers were strong, particularly online sellers, and small and mid-size stores fared better than larger chains.

Retailers will be having even tougher choices in 2019, as weather forecasts predict a much colder winter in 2019, along with higher freight and steel prices.

“Retailers continue to work toward a future that expands their reach while conserving costs and flexibility,” Shay said. “They are on the forefront of the industry’s efforts to improve customer service and better utilize their data.”

Kleinhenz said that while department stores “have to contend with and respond to a rapidly changing landscape,” small and mid-size stores are more insulated than larger chains from shifts in consumer behavior.

Retail executives can expect a lot of scrutiny in 2019 as elections loom in the U.S. and nearly a dozen of the world’s biggest cities host the World Expo, and even foreign political shocks jolt the global economy. Big box retailers in the United States, such as Target, Wal-Mart, Best Buy and Macy’s, are all planning big remodels and expansions in 2019.

The push is on in 2019 for brick-and-mortar retailers, with 2019 quickly becoming a defining moment, chief executive Marvin Ellison said.

That’s because mall retailers and others continue to struggle. Eight of the 10 largest U.S. malls were in decline in 2017, according to a report by commercial real estate services firm JLL. Their total base square footage of retail space dropped 17 percent between 2016 and 2017.

Retailers such as department stores and specialty apparel retailers are facing headwinds, with less traffic in malls and fewer women turning to shopping malls for children’s clothing.

After a disappointing 2018 for retailers, the 2017 annual economic outlook for retailers is much more optimistic than it was a year ago, JLL said in its report. It expects the economy to slow from the strong 3.7 percent growth rate in 2017, but still expand by 2.9 percent in 2018. It also expects the Federal Reserve to raise interest rates two or three times next year.

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