NOVEMBER 23, 2014 - Deborah Weinswig...!1 November 22, 2014 FBIC Global publication: THANKSGIVING/BLACK FRIDAY PREVIEW DEBORAH WEINSWIG Executive Director-Head Global Retail Research

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November 22, 2014

FBIC Global publication: THANKSGIVING/BLACK FRIDAY PREVIEW

D E B O R A H W E I N S W I G E x e c u t i v e D i r e c t o r - H e a d G l o b a l R e t a i l R e s e a r c h a n d I n t e l l i g e n c e F u n g B u s i n e s s I n t e l l i g e n c e C e n t r e d e b o r a h w e i n s w i g @ f u n g 1 9 3 7 . c o m N e w y o r k : 6 4 6 . 8 3 9 . 7 0 1 7

NOVEMBER 23 , 2014

• Promotional creep of “Black Friday Week” gives holiday shopping an early boost • Online sales to climb 16% – 18% YoY • Retailers, malls and outlet centers drive traffic with events and “experiences” • Despite an improved macro backdrop, consumers remain highly value focused • Retailers entered Q4 with relatively lean inventory; Arctic surge depleted cold-weather

products and reduced markdown risk

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November 22, 2014


Thanksgiving/B l a c k F r i d a y Weekend At-A-Glance

• 140 million shoppers are expected to shop the Thanksgiving holiday period through Cyber Monday this year according to the NRF and Prosper Insights & Analytics.

• FBIC projects flat to a +2% sales lift in 2014 as ‘holiday creep’ in early November captured some traditional Black Friday weekend sales.

• We see online continuing to garner a larger proportion of seasonal purchases with sales rising 16% -‐ 18% during the 4-‐day holiday shopping frenzy.

• Despite an improved YoY macro environment including increased employment, lower gas prices, and strong consumer sentiment, consumers haven’t seen a real increase in income for a decade and remain highly value focused.

• RetailNext is projecting a 2% -‐ 3% sales increase on flat to down (-‐2%) traffic offset by gains in conversion and average transaction value (ATV). This compares with a (-‐2.9%) sales decline in 2013 to $57.4 billion on an approximate 2 million gain in shopper traffic.

• Adobe predicts 31% of online sales will be generated via smartphones and tablets, up from 21% in 2013.

• Planalytics projects milder weather during Thanksgiving and the entire Black Friday weekend. This supports store traffic growth while potentially penalizing sales of cold weather gear.

• Lower gas prices should drive additional store visits and spending if the price is right!

Thanksgiving / Black Friday Week Weather Outlook November 24 – 30, 2014

(Average Temperature vs. Last Year)

Source: Planalytics

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November 22, 2014


Thanksgiving/B l a c k F r i d a y KEY TOPICS: 1. EXECUTIVE SUMMARY

2. EARLY BLACK FRIDAY SHOPPING AND IMPACT ON SALES

3. HISTORICAL BLACK FRIDAY SALES AND BLACK FRIDAY WEEKEND TRENDS (2 YEARS)

4. STORE HOURS AT 15 TOP RETAILERS 2014 and 2013

5. HOLIDAY PROMOS

6. HOLIDAY 2014 WEATHER OUTLOOK

7. HOLIDAY SEASON GASOLINE PRICES

8. E-COM AND M-COM SALES

9. CONSUMER ELECTRONICS FOCUS—TRENDS WE EXPECT TO SEE THIS BLACK FRIDAY HOLIDAY

10. SOCIAL MEDIA SENTIMENT

The Story of Black Friday: Black Friday refers to the day after the U.S. Thanksgiving holiday, which falls on the last Thursday of November. Although Black Friday is not an official holiday, many people take vacation on that day in order to start their Christmas shopping. The term originated in Philadelphia before 1961 and was used more broadly around 1975. It refers to retailers’ having been unprofitable for the year until the day after Thanksgiving (whose accounts would written in red ink to indicate a loss), after which retailers would turn profitable and be “in the black” for the remainder of the year.

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November 22, 2014


1. EXECUTIVE SUMMARY

Happy Holidays!

We are pleased to share our insights into the upcoming shopping holiday: the four days spanning Thanksgiving and Black Friday through Cyber Monday. Retailers have been preparing for months, with differentiated products and sharp promotions, to be heard amid the cacophony of holiday offers. This is the official start to the holiday shopping season in the US, though calendar creep has resulted in the season’s shopping starting earlier every year. At several retailers, we noticed Holiday decorations in the stores before back to school even began! Shoppers have been inundated with offers, discounts, and promotions for more than a month and have been conditioned to expect up to 60% off the suggested price.

FBIC’s predictions for the Thanksgiving Day/Black Friday holiday:

• Strong holiday creep with “Black Friday Week” deals spread out over the week before Thanksgiving and lasting beyond Cyber Monday as retailers need to discount heavily to drive traffic

• Online sales up 16%-‐18% YoY

• Retailers, malls and outlet centers will host events to create experiences that attempt to drive store traffic on something other than deep (and frequently unprofitable) promotions

• Despite an improved YoY macro environment including increased employment, lower gas prices, and high consumer sentiment, consumers haven’t seen a real increase in income for a decade and are highly value focused

• A continuation of aggressive pricing strategies, which combine with the price transparency afforded by the internet, are likely to cut into profit margins of many retailers and brands

• FBIC believes retailers entered Q4 with relatively clean inventory and with the recent Arctic surge, sold through much cold weather product, reducing markdown risk

Based on retail trends and broader macro-‐economic data, RetailNext predictions for retail during Thanksgiving weekend are:

• Traffic flat to slightly down (0% to 2% decline) YoY

• Sales up 2%-‐3% due to upticks in ATV and conversion

• Conversion up 1-‐2 points

• Average transaction value (ATV) up 1%

FBIC expects a highly competitive environment with retailers and brands jumpstarting the Black Friday promotions a full week ahead of the event, now named “Black Friday week.” We’ve seen sneak-‐peek sales, “sale before the sale” campaigns, daily flash deals and countdowns to Black Friday. Meanwhile the consumer is unimpressed with most marketing gimmicks, and armed with a list of intended purchases, she has little, if any, mindshare for additional product, and the truth is, she already bought much of what she needs due to the early arrival of cold weather!

Differentiated Marketing. Employing a lifestyle marketing strategy, Walmart created an online Thanksgiving Hub featuring holiday recipes, healthy eating suggestions and kids’ projects all in video form. Walmart is connecting with its consumers and enriching the relationship without asking for the sale. At Tanger Outlets, in addition to its ‘Moonlight

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November 22, 2014


Madness’ sale, which starts at 6 p.m. Thanksgiving and goes through 2 a.m. Black Friday morning; shoppers are invited to play A Night at Tanger Outlets: The Secret of Savings for a chance to wine family vacations, savings and more. The event is tied to the 2014 holiday film, Night at the Museum.

Despite some retailers opening as early as 5:00 p.m. on Thanksgiving Day, we don’t expect this to have a significant impact at the register. Deep discounts along with sales spread over a longer promotional period will likely disperse the sales over the weekend and beyond.

2. EARLY BLACK FRIDAY SHOPPING AND THE IMPACT ON SALES

The NRF and Prosper Insights and Analytics* project more that 140 million unique shoppers during the Thanksgiving-‐Cyber Monday period, which equates to six in 10 consumers. 18.3% or 25.6 million people say they will shop Thanksgivings Day, down from 23.5% in 2013. Last year, Thanksgiving Day sales surged 23.7% as shopping after feasting became a ritual. This year, the prospect of shopping on Thanksgiving Day seems to have lost some of its allure. Consumers surveyed exhibited a ‘wait and see’ attitude; if the deals are good enough, they will come, as reflected in a 2 million increment in the number of ‘maybe’ shoppers.

In 2013 we witnessed a distinct shift in spending from Black Friday to Thanksgiving Day. The latter experienced a 23.7% YoY sales increase, followed up a 2.9% gain on Black Friday according to MasterCard Advisors. Total spending for the Thanksgiving holiday weekend declined (-‐2.9%) YoY despite 1.07 billion store visits made in 2013 on Thanksgiving and Black Friday combined (ShopperTrak).

* Prosper Insights and Analytics surveyed 6,593 adults Nov. 3 -‐ Nov.10

Figure 1. Thanksgiving Weekend 2013 Sales and Traffic Metrics (Value; % Change YoY)

Thanksgiving Day Black Friday Thanksgiving +

Black Friday Four-‐Day Weekend

Cyber Monday

Total Sales +23.7%³ +2.9%³ $12.3B; +2.3%⁴ $57.4B;(-‐2.9%)⁴ $1.7B; +20.6% ⁵

(-‐13.2%)⁴ 8%³

In-‐Store Sales $12.3B⁴ $22.2B; +1%⁴ Online Sales +19.7%¹ +19%¹ $2.0B; +17.3%⁵

% Mobile 25.8%¹ 21.8%; +42.9%¹ 17%; +55.4%¹

Total Shoppers 45M; +28.6%² 92M; +3.4%² 141M; +1.4%² Store Traffic (-‐11.4%)⁴ 1.07B; +2.8%⁴ 248.6M²,⁶

Online Traffic 59M² 131M²

Total Average Spend/Shopper

$407²

Online Average Spend/Shopper

$128 ¹ $135; +2.3%¹ $178²

Sources: ¹ IBM ² NRF ³ MasterCard SpendingPulse ⁴ ShopperTrak ⁵ comScore ⁶ includes multiple visits by individuals

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3. HISTORICAL BLACK FRIDAY SALES AND BLACK FRIDAY WEEKEND TRENDS Online buying occurring earlier in the season

INTERESTING FACTS & FIGURES

Thanksgiving Day 2013

• Thanksgiving Day online sales grew 19.7% YoY (IBM Benchmark Report)

• 45 million people shopped after Thanksgiving dinner (NRF)

• 25% of Thanksgiving Day shoppers arrived at a physical retail store by 8:00 p.m. and 37.3% before midnight (NRF)

• Thanksgiving Day purchases increased 23.7% YoY (MasterCard SpendingPulse)

Black Friday 2013

• 70% of the purchases made by individual consumers on Black Friday were made at the first two stores they visited (MasterCard Advisors)

• The most heavily trafficked e-‐commerce websites were Amazon.com, BestBuy.com, eBay.com, and Walmart.com (ComScore)

• Traffic to physical retail stores fell (-‐11.4%) and retail sales decreased by (-‐13.2%) on Black Friday (ShopperTrak)

• Black Friday 2013 spending increased 2.9% over 2012 (MasterCard SpendingPulse)

Thanksgiving Day/Black Friday 2013

• Sales increased 2.3% to $12.3 billion for the combined Thanksgiving Day/Black Friday shopping marathon days (ShopperTrak)

• Traffic at physical retail stores rose 2.8% to more than 1.07 billion visits (ShopperTrak)

• Traffic and sales rose in all US regions except the Northeast, where traffic declined (-‐5%) and sales were off (-‐7%) (ShopperTrak)

• Total spending increased 8% YoY (MasterCard SpendingPulse)

Four-‐day Weekend-‐-‐Thanksgiving Day through Cyber Monday 2013

• 141 million shoppers visited stores or websites from Thanksgiving Day through Cyber Monday (NRF) and the NRF estimated a $57.4 billion spend over the four-‐day weekend, down 2.9% over 2012

• 59 million consumers shopped online between Thanksgiving Day and the Sunday after Black Friday and spent an average of $177.67 per person (NRF estimates)

• 76.4% of shoppers self-‐gifted (NRF survey estimates)

• Sales at physical store rose 1% to $22.2 billion (ShopperTrak)

4. STORE HOURS AT 15 TOP RETAILERS 2014 and 2013 According to our research, in 2014 nine of the 20 top retailers have moved their Thanksgiving store openings earlier than last year by one to three hours; the average is 2.2 hours. Another sign of a highly competitive and promotional season that could lead to weakened profitability metrics.

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November 22, 2014


Figure 2. Thanksgiving Day Store Hours for 20 Top Retailers

Thanksgiving Day Store

Opening Time

2014 2013

Kmart 6 a.m. 6 a.m.

Family Dollar 8 a.m. 8 a.m.

Walgreens 8 a.m. 8 a.m.

Old Navy 4 p.m. 7 p.m.

Best Buy 5 p.m. 6 p.m.

Dick's Sporting Goods 5 p.m. 8 p.m.

JC Penney 5 p.m. 8 p.m.

Tommy Hilfiger 5 p.m. 5 p.m.

Toys 'R' Us 5 p.m. 5 p.m.

Kohl's 6 p.m. 8 p.m.

Macy's 6 p.m. 8 p.m.

Sears 6 p.m. 8 p.m.

Walmart 6 p.m. 6 p.m.

Target 6 p.m. 8 p.m.

Victoria's Secret 6 p.m. 8 p.m.

Lowe’s 8 p.m. 8 p.m.

Home Depot Closed Closed

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5. HOLIDAY PROMOS

2014 Black Friday 2013 Black Friday

Retailers Front-‐Page Items Pgs. Open Time Front-‐Page Items Pgs.

Open Time

Best Buy

iPad Air; Samsung 55'' TV; Blockbuster DVDs; Samsung Galaxy 5; Dell Touchscreen Laptop

50 5 p.m. iPad2; Samsung 65'' TV; Blockbuster DVDs; Kindle Fire

23 6 p.m.

Costco Dell HP desktops and laptops 8 9 a.m.

All Samsung electronics (phone, tablets and blue-‐ray player)

9 9 a.m.

CVS

CVS vitamins buy 1 get 1 free, toys, fragrance, Christmas décor and

4 Open CVS vitamins buy 1 get 1 Free; CVS Alkaline Battery

4 Open

Dollar General

Christmas decors, snacks, kitchen appliance, and tablet computers

4 7 a.m. Christmas Decors; Portable DVDs; Game Stations;$1 Snacks

4 7 a.m.

JC Penney Boots, jewelry, kitchen appliance, toys, and towels

72 5 p.m. Boots; Jewelry, luggage sets and home appliances

72 8 p.m.

Kohl's

Get $15 store cash for every $50 Spent. HD TVs, headphones and Bluetooth speakers

64 6 p.m. Get $15 store cash for every $50 Spent. Toys, jewelry and HD TV

64 8 p.m.

Macy's Boots, women's and men's apparel. blenders and woks

56 6 p.m. Boots, women's and men's apparel. Keurig coffee machine

57 8 p.m.

Sears

Craftsman tools, boots, HD TV, jeans, fleece, and washing machines

64 6 p.m.

Craftsman tools, boots, HD TV, jeans, fleece, refrigerators, and washing machines

64 8 p.m.

Target HD TV, headphones, DVDs, camera, and game system

36 6 p.m. HD TV, headphones, DVDs, camera, and game system

32 8 p.m.

Walgreens Toys, snacks, vitamins, and toilette paper

20 8 a.m. Toys, DVD rentals, and winter décor 19 8 a.m.

Walmart

One-‐hour Stock Guarantee; HD TVs, iPads, blue ray player, X-‐box

40 6 p.m.

One-‐hour Stock Guarantee; HD TVs, iPads, blue ray player, Call of Duty game

40 6 p.m.

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6. HOLIDAY WEATHER FORECAST • Drier and Warmer Weather Supports Store Traffic • Cold-‐Weather Items Will Suffer

Based on the warmer YoY temperatures in the East and along the West Coast, weather will support foot traffic for most retail segments. Expect demand for cold weather seasonal categories such as sweaters, jackets, gloves, blankets and heaters to lag last year. (Please refer to the temperature map on page 1.)

Source: Planalytics

Drier Weather for Most over the Holiday Weekend. While Thanksgiving travelers may have to deal with inclement weather early in the week, it should push out by Turkey Day, providing dry weather for Black Friday bargain hunters. While warmer temperatures versus last year’s holiday may shift purchasing away from seasonal items, the weather impact on retail traffic overall should be minimal. The Southern Plains may be faced with inclement weather during the holiday.

November to End on a Stormy Note. A large system will push through the West early in the week, bringing a good soaking to California and the West Coast, as well as some mountain snow. As this system pushes east into the Plains and Midwest, expect heavy rain in the South. Anticipate a measurable swath of snow from the Central Plains through the Upper Midwest into eastern Canada.

7. HOLIDAY SEASON GAS PRICES

Gas prices in the U.S. averaged $2.83 per gallon on Nov. 21, 2014, down 39 cents from a last year, according to the AAA Fuel Gauge Report. Anecdotally, we have heard of prices of $2.50 a gallon, versus nearly $4.00 a year ago. Given that transportation costs represent a larger portion of the disposable income of lower-‐income families, the decline in gas prices is likely to benefit lower-‐priced stores, rather than luxury stores.

8. E-COM AND M-COM SALES

We expect the use of online and mobile shopping to increase this Thanksgiving weekend. The Consumer Electronics Association expects 6 million more people to shop online between Thanksgiving and Cyber Monday this year, for a record 103 million online shoppers, and 75% will use a mobile device while shopping.

Figure 5. Foot Traffic Weather Driven Demand YoY by Retail Sector

General Merchandise Store Traffic +4.0%

Restaurant Traffic +1.7%

Retail Outlet Traffic +1.6%

Mall Traffic +1.0%

Figure 6. Weather-‐Driven YoY Category Demand

Hot Drinks -‐0.8%

Fleece -‐0.9%

Boots -‐6.3%

Firewood -‐9.0%

Warming Blankets -‐13.0%

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Figure 3. Daily Retail Desktop E-‐Commerce Sales (Millions)

Source: comScore e-‐Commerce Measurement

In 2013, four categories tied in desktop sales growth during the entire holiday shopping period. FBIC projects continued online momentum, but switching to mobile and tablets in 2014.

Figure 4. Top-‐5 Gaining Product Categories by Sales Growth for 2013 Holiday Season November-‐December 2013 YoY Total U.S. – Home & Work Desktop Computers

Rank Top Gaining Product Categories % Increase

1 Apparel & Accessories 13%

2 Consumer Electronics 13%

3 Computer Hardware 13%

4 Toys & Hobbies 13%

5 Video Game Consoles & Accessories 12% Source: comScore

Mobile is having a huge and growing influence on retail. The last six months have seen an 11% increase in purchases by mobile phone versus the same time last year, according to a recent CFI Survey. Industry prognosticators predict that in 2015 we could see over 50% of purchase decisions made with a mobile device of some type.

• Mobile devices (smartphones and tablets) accounted for 39.7% of all online traffic for Black Friday in 2013, a 34% YoY gain (IBM)

• Mobile sales were 21.8% of online sales, up 43% YoY (IBM) • Smartphones were 24.9% of all online traffic; tablets were 14.2% (IBM)

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9. CONSUMER ELECTRONICS FOCUS – TRENDS WE EXPECT In the CE space, most of the Black Friday promotions are centered on TVs, laptops and PCs. Discounts are extremely competitive.

TVs. Greater value and bigger discounts make this category a great gift. TV promotions offer a minimum of LED backlighting, 1080p vertical resolution, and at least a 60-‐Hz refresh rate. 2014 marks the emergence of 4K Ultra-‐HD TVs, and Best Buy is offering a 55” Samsung model for a ridiculously low $899.99. The sweet spot of the TV market is the 48-‐50” range, where lower-‐tier brands cost about $4.00 per diagonal inch. Tier-‐1 brands are selling in the $8-‐$10 per inch range. In 2013, 46” was the sweet spot, with sets costing roughly $7-‐$9 per diagonal inch.

The cheapest set on a relative basis was a 40” Element set at Target for $119, and the most expensive set was a 70” Sharp for $1,799.99 at Best Buy. Interestingly, there has been little promotional mention of 3D flat-‐screen TVs this year.

PCs/Tablets. There has been substantial discounting and large price variation in tablets, an item at the top of even kids’ lists this holiday. Even rarely discounted Apple products are subject to promotional pricing—a sure traffic driver!

Best Buy is offering $100 off the iPad Air 2s (starting at $399.99) and Target has a $140 gift card with the purchase of a $499 16 Gb iPad tablet. Walmart has a 16 Gb non-‐Retina iPad Mini for $200. Also at Best Buy, a no-‐name 8” tablet for $1 with LTE activation and a 7” Android tablet for $40. In the laptop space, Staples has an Asus laptop for $100 and Best Buy a 15.6” Dell for $299.99.

10. SOCIAL MEDIA SENTIMENT For real-‐time social media trend intelligence we partnered with Bottlenose to analyze social media sentiment as we approach the Thanksgiving/Black Friday holiday. Social media sites Twitter, Tumblr and Facebook are already observing a great deal of Black Friday activity. Not surprisingly, two of the largest retailers in the US, Amazon and Walmart, along with iPhone are enjoying heightened social media activity.

The figure below (taken November 19) shows the relationships between the Black Friday key topic and other subtopics and topics mentioned with hashtags (using the # sign.) It reveals Amazon and Walmart capture the most social media interest, while Black Friday savings, Black Friday sales, and deals are top of mind as well.

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Deborah Weinswig, CPA Executive Director – Head Global Retail Research and Intelligence Fung Business Intelligence Centre New York: + 646.839.7017 Hong Kong: +1.852 6119 1779 [email protected] Marie Driscoll, CFA [email protected] Christine Haggerty [email protected] John Harmon [email protected] Amy Hedrick [email protected] Fong Lau [email protected] Lan Rosengard [email protected] Jing Wang [email protected]

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NOVEMBER 23, 2014 - Deborah Weinswig...!1 November 22, 2014 FBIC Global publication: THANKSGIVING/BLACK FRIDAY PREVIEW DEBORAH WEINSWIG Executive Director-Head Global Retail Research