- Gross merchandise volume (GMV) between November 1 and November 11: 540 billion Chinese yuan or $85B, up 8% yoy but lower than the 26% growth seen in 2020
- 290,000 new brands took part
2021 has been a challenging year for the retail industry. Contending with a global pandemic, supply challenges and store closures has changed the face of shopping for many, but is the “new normal” going to last? Do further changes lie ahead and how will the retail sector adapt?
In this industry outlook, J.P. Morgan Research explores consumer spending habits and upcoming trends through three key lenses: Holiday shopping, the rise of e-commerce and key trends that will shape the future of retail in 2022 and beyond.
What's in store for the retail industry?
E-commerce penetration is expected to reach 30% by 2026.
The "Singles Day" shopping holiday in China saw record sales, though e-commerce growth was lackluster due to greater regulation and weakening consumer sentiment.
Supply should begin normalizing and the worst may be behind us.
Consumption will moderate, expected to largely match income growth at 4% by Q4 2022.
Sports, furnishing, and electronics are most at risk for share reversion in 2022.
Record sales growth is expected this holiday season, with the J.P. Morgan annual holiday forecast predicting growth of +13% year-over-year (yoy), up from 2020 growth at 7.6% and 2019 growth at 4.3%, meaning 2021 looks set to be a much stronger year for holiday retail. Consumer spending in November, per proprietary Chase credit card data, accelerated around 220 basis points (bps) compared to October (relative to 2019). Key drivers include strong consumer confidence, increased disposable income, resurgence of brick and mortar retail following pandemic constraints and an additional shopping day between Thanksgiving and Christmas (30 days vs. 29 days last year).
“Bigger retailers will reap the benefits more than smaller ones given their ability to mitigate supply chain challenges, with healthy inventory levels across large retail players such as Walmart, Target and Costco,” said Christopher Horvers, Broadlines and Hardlines Retail Analyst.
Holiday shopping was underway early this year and retail sales accelerated in October, driven by fears over product availability come December. For retailers, demand is high, so limited holiday season promotional risk should more than offset challenges posed by transportation issues and supply tightness, even though freight pressures are likely to accelerate in the fourth quarter (Q4) of 2021.
“Demand is exceeding supply. That said, there’s ample inventory on hand to see retailers through to the best holiday season on record. We’ll see themes from previous years continuing and as a whole, we’re likely to see very strong numbers coming out of this holiday,” said Matthew Boss, Head of Department Stores and Speciality Softlines at J.P. Morgan.
“With all eyes on December, Weather Trends International is forecasting continued dryness which is a key traffic driver. Christmas week itself is setting up to be the coldest in 11 years in both the U.S. and Europe. A cold snap into Christmas supports our view that there is the potential for a ‘double-dip holiday’” Boss added.
The sectors least affected by holiday shopping include home improvements and autoparts. Christmas matters most in the discretionary category and Q4 has the largest impact for speciality retailers such as Best Buy, Bed Bath & Beyond, Dick’s Sporting Goods, Ulta Beauty and Williams-Sonoma, as well as apparel retailers.
“Demand is exceeding supply. That said, there’s ample inventory on hand to see retailers through to the best holiday season on record. We’ll see themes from previous years continuing and as a whole, we’re likely to see very strong numbers coming out of this holiday.”
Consumer discretionary spending on Black Friday increased by 17% vs. 2019, despite brick and mortar channel constraints on peak holiday volume days relative to 2019. Looking broadly across retail, Amazon, Boot Barn, Allbirds, Five Below and PVH have all cited strong Black Friday sales and good holiday momentum.
The early start to the season will likely lead to a softer ending, with January even leaner given the lapping of stimulus last year.
“We continue to see holiday pullforward risk with 100-200 bps of growth earlier in the season mitigating easier comparisons in December. Additionally, January 2021 retail sales growth may have experienced a 10%+ lift from stimulus, benefitting toys, electronics, furnishings, appliances, clothing and sporting goods the most.”
This year’s Double 11 or “Singles Day” shopping holiday saw China’s e-commerce leaders Alibaba and JD achieving record sales. However, e-commerce growth was lackluster compared with previous years which was not unexpected against a backdrop of greater regulation in the e-commerce space and weakening sentiment amongst China’s consumers.
“While Alibaba’s Double 11 GMV growth decelerated meaningfully vs. last year, high-single-digit growth is in line with our expectations for its core-core GMV growth in Q4. JD’s growth during Double 11 was surprisingly resilient. Investors are paying more attention to Double 11 results this year given concerns of a consumption slowdown and the share price performance of China internet stocks.”
A strong online holiday season is expected despite physical retail making a comeback. U.S. online holiday sales are expected to grow 14.5% yoy, even after the outsized +32% yoy pandemic-driven growth seen in 2020. Chase credit card data indicates U.S. discretionary card-not-present spend has grown +23% so far this quarter compared to the same timeframe last year. E-commerce penetration of adjusted holiday retail sales is estimated to be 21.2%, relatively in line with the 20.9% seen in 2020.
COVID-19 changed spending habits and the pandemic pulled e-commerce forward by around three years in 2020, driving +32% yoy growth. Likewise, U.S. e-commerce growth has continued to outpace average adjusted retail spend, growing at a +17% compound annual growth rate (CAGR) vs. 4%. In the U.K., total online penetration across all non-food categories was 42%, 10 percentage points higher than two years ago. Footfall for the month was also down 14%.
Looking ahead, e-commerce is expected to continue to gain share, with 30%+ e-commerce penetration predicted by 2026. Amazon and other retailers can further unlock underpenetrated product verticals such as grocery, apparel/accessories and furniture/appliances/equipment, creating the potential for 40-50% penetration long term.
Advocates for brick and mortar retail believe that while e-commerce has taken three steps forward, it is likely to take one step back. E-commerce mix could decline in 2021 for three key reasons:
While long-term digital penetration is likely to be above 30%, 50% seems high given this consumer climate.
“This is especially the case due to inflation. We would see it benefitting dollar stores such as Dollar General, as well as off-price retailers,” Boss added. “Looking ahead to 2022, it’s all about value and convenience in brick and mortar retail,” said Boss.
What does the world of e-commerce look like from the point of view of the biggest U.S. online retailer?
2022 promises to be an important year for retail. It will likely be a defining one for e-commerce, in particular for Amazon and the split between online shopping and brick and mortar retail will come into focus with greater freedom from the retail constraints posed by COVID-19. Here are some of the key retail industry trends and themes to watch in 2022.
The worst may already be behind us and multiple macro indicators are pointing to a thaw in supply chains, with U.S. and Asia backlogs reversing in recent weeks. One view is that supply and labor shortages will be temporary, reversing with a decline in COVID-19. However, it may take some time for improvements to be felt everywhere.
“Supply chains are gaining some fluidity but there’s no silver bullet. There have been several carrots to move freight faster, such as rebates and more hours, but it looks like the sticks – congestion fees – have had the biggest impact so far. The queuing system changed mid-November so the total number of ships coming into ports is actually up, nearing an all-time high. The ships are just queuing up further offshore now,” said Brian Ossenbeck, Airfreight and Surface Transportation Analyst at J.P. Morgan.
J.P. Morgan Research also expects retail inventories will take six months minimum to build back to a normal level. “What needs to happen is for port congestion to ease, particularly on the Transpacific lane. Over time this will likely be caused by consumption patterns normalizing and a return of U.S. trucking capacity, helping retail inventories climb from their current record low level vs. sales. Limited container shipping capacity is expected in 2022 given the two to three year lead time on new ship building. Longer term, as the congestion eases, there is a lot of capacity coming in 2023 and 2024 as shipping lines have been ordering more ships. This will tend to put downwards pressure on freight rates in the mid-term,” said Samuel Bland, European Transport Analyst.
In Q1 2022, J.P. Morgan forecasts a drop of around -6% yoy in disposable personal income as COVID-19 stimulus winds down, with growth following this. For total consumption, an 8% increase is forecast in the first half of 2022. By Q4 2022, consumption is expected to largely match income growth at 4% which is indicative of normalized savings levels.
Sporting goods share is 30%+ above pre-COVID levels, while home furnishings and consumer electronics (PCs, tablets and TVs) are up 20%. With mounting transportation costs applying increasing pressure, there is more risk of gross margin disappointments in Q4 2021 and Q1 2022. While heavy import categories such as sports, furnishings and electronics appear to be ahead of the costs, there is still the risk of a flattening earning revision curve.
The long-term impact of COVID-19? Housing affordability
November 10, 2021
Is housing affordability the next post-pandemic crisis?
Did the airline industry recover yet?
November 03, 2021
As consumers continue to book domestic flights, leisure is driving the recovery from the impact of the COVID-19 pandemic. J.P. Morgan Global Research explores the future of air travel.
This communication is provided for information purposes only. Please read J.P. Morgan research reports related to its contents for more information, including important disclosures. JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively, J.P. Morgan) normally make a market and trade as principal in securities, other financial products and other asset classes that may be discussed in this communication.
This communication has been prepared based upon information, including market prices, data and other information, from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy except with respect to any disclosures relative to J.P. Morgan and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication. Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, J.P. Morgan may be restricted from updating information contained in this communication for regulatory or other reasons. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.
This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of J.P. Morgan. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitutes your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of J.P. Morgan.
MSCI: The MSCI sourced information is the exclusive property of MSCI. Without prior written permission of MSCI, this information and any other MSCI intellectual property may not be reproduced, redisseminated or used to create any financial products, including any indices. This information is provided on an ‘as is’ basis. The user assumes the entire risk of any use made of this information. MSCI, its affiliates and any third party involved in, or related to, computing or compiling the information hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of this information. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. MSCI and the MSCI indexes are services marks of MSCI and its affiliates.