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December 15, 2021

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.

How Much Are Holiday Shoppers Spending This Year?

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.  

Record holiday season: 13% core retail sales growth expected November-December

A bar and line chart showing +15% predicted holiday sales growth in 2021, jumping up from 7.6% growth in 2020.

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.”

Matthew Boss, Head of Department Stores and Speciality Softlines

Looking Beyond Black Friday

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.” 

Christopher Horvers, Broadlines and Hardlines Retail Analyst

Regional Retail Spotlight: Singles Day Spending in China

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

Singles Day 2021 in numbers:



“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.”

Andre Chang, China E-Commerce Analyst

The Future of E-Commerce

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.

Chase credit card data, e-commerce discretionary card-not-present spending growth

A line chart showing that Chase card-not-present year-over-year spending growth spiked at more than 70% in March 2021.

 

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.

Around 30% U.S. e-commerce penetration is predicted by 2026

E-commerce penetration line chart showing 400bps growth in three years. 31.2% penetration is predicted in 2026, up from 19% in 2020.

E-commerce vs. Retail

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:

 

  1. The gap between core retail sales growth and e-commerce-only growth has steadily receded since last May and took a step function down in March toward more normal levels as vaccination rates rose.
  2. Online penetration generally receded yoy in Q1 2021 for retailers within J.P. Morgan’s coverage. There was particular enthusiasm from Target and Walmart on the return to stores.
  3. Companies like Best Buy and Ulta Beauty are explicitly guiding for penetration declines yoy.

 

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.

Telling the Story of E-Commerce Through Amazon Statistics

What does the world of e-commerce look like from the point of view of the biggest U.S. online retailer?

  • Amazon’s share of U.S. e-commerce rose to 39% and sales accounted for almost 8% of total adjusted retail sales. It is believed that Amazon will surpass Walmart as the largest U.S. retailer in 2022. “This is the battle of the “everything” stores” said Doug Anmuth, Head of U.S. Internet Research (Large Cap/Mid and Small Cap). “Walmart is the original everything store and is now leveraging its specific asset base and dominance in grocery while taking numerous pages from Amazon to drive alternative profit pools. However, Amazon is still expected to become the largest U.S. retailer in 2022 with strong top-line growth at scale, the Prime flywheel and strong 3P seller growth.”

  •  J.P. Morgan Research estimates the Prime subscription is worth around $1,000/year and expects the pandemic may have delayed a Prime price increase in 2020, which could potentially come during 2022.

  •  J.P. Morgan Research estimates Amazon is most underpenetrated in jewelry and watches and flowers/greetings, both with around 25% share. It indexes highest in books and magazines with 80% share and consumer electronics at 50% share. 

The Future of Retail: Industry Outlook for 2022 and Beyond

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. 

Three Retail Trends to Watch in 2022




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