Results are starting to trickle in from Christmas 2018/2019, and for many retailers, they're a little disappointing. Paydar chief executive and co-founder Kelly Withers explores the data.
Christmas is a period that has traditionally been the busiest time of year for retail. But a slower than expected December period for many in 2018 has left retailers scratching their heads and wondering what has happened to their cash-cow period.
Without wider market data, retailers are unable to benchmark themselves against others in the industry, nor understand the wider market dynamics impacting their business and the number of customers that walk through their door. So we did a deep dive into Paymark’s payments data to assess the state of the retail industry in New Zealand and see what is changing and why.
The overall state of the market
The numbers show that it’s actually not all doom and gloom for retailers. Overall, spending during the 2018 Christmas holiday period (Nov – Jan) was up 3.4 percent compared to the same period in 2017. But the sense of a retail cooling that many businesses have reported feeling likely comes from the disparity between year-on-year (YoY) growth rates of transaction volumes when compared to transaction values.
Transaction values had negative growth rates in December 2017 from the previous year and only 1 percent growth in December 2018, while the number of transactions grew by around 2 percent both years.So people are making more purchases, but spending less – keeping stores busy but revenues in check. This could be linked to retail events such as Black Friday setting a tone for large discounts, as well as increased competition and more international brands moving into the market driving prices down.
The perception of a disappointing December is compounded by the relative success of November and January, with both months growing by over 4 percent in revenue and over 5 percent in transaction volume from the previous year.
With a clear shift in growth rates from December to the surrounding months, retailers are right to be wondering whether consumers are purchasing different things, or if their spend has shifted to other key shopping periods in the year.
Changing shopping habits
It took Kiwis a while to get on board with the American phenomenon of Black Friday, but in 2018 we saw a significant increase in the number of retailers offering Black Friday sales, and shoppers making the most of the big discounts available. In 2018 there was a 10.4 percent increase in retail spend on Black Friday, up considerably from previous years.
However, this November Black Friday spending spree comes at a cost for many retailers, with growth slowing in December as a result. It looks like consumers are changing their behaviour to make their Christmas purchases early on Black Friday to avoid the Christmas madness and take advantage of the discounts available.
It should come as no surprise to retailers that when Christmas Day falls has a big impact on when people are out doing their last minute shopping. When Christmas Day was on a Tuesday last year, the Monday before Christmas saw a peak in spend versus other years where people have largely finished their shopping by the Friday before.
It also appears that when Christmas Day falls close to weekend, people take time in the week before to complete their shopping.
People are changing what they are buying
The December slowdown in customer spend goes some way to explaining the trouble that many retailers have reported, however while overall sales show some macro trends they conceal some key insights. Primarily, a shift of spending between sectors.
Sectors that traditionally dominated gifting spend such as clothing and sporting goods show negative YoY growth between Christmas 2017 and Christmas 2018. On the other hand, spending grew across sectors that are centered around social interactions and experiences.
This change seems to be tied to a couple of big cultural shifts in society. The ‘Marie Kondo Effect’ sees people shifting away from a consumerist mindset towards a more minimalist way of life. This is driving a shift in focus towards social experiences over things. We can see from the data that people are placing greater importance on activities that enable them to socialise with friends and family.
Numbers tell the full story
Many retailers are asking themselves how they performed over the recent holiday period, and while sales numbers can go a long way towards highlighting trends, our analysis has shown that the dynamic is a complicated one.
While there is no single Grinch that stole Christmas, a new normal appears to be developing and this is something that retailers will need to bear in mind in their planning for Christmas 2019 and beyond.
Some key takeouts from our analysis:
- With December growth rates flat and well below expectations, it’s even more crucial for merchants to understand where they sit within both the market and their sector so that they can make the most of the sales that remain in the market.
- It looks like Black Friday is here to stay, and while merchants will need to make sure they contest this spending spree, they will have to be mindful of the effects this could have on their sales down the road.
- We seem to be at a turning point in consumer behaviour. People are shifting towards experiences, social activities and homemade presents. In order for merchants to re-engage with customers they will need to understand what drives them and keep a close eye on shifting spending habits. This will enable them to shape their offering to account for customers that are focusing less on pursuing fashions and more on meaningful purchasing.
- While Christmas 2019 may seem a while away, merchants need to begin adjusting customer expectations and views now in order to best place themselves in this changing landscape. By tracking performance over time it is possible to test, and iterate on branding, promotions, and product sets.