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Top Retail and Commercial Real Estate Trends for Holiday 2022

RJ Hottovy
Oct 7, 2022
Top Retail and Commercial Real Estate Trends for Holiday 2022

With Amazon’s Prime Early Access Sale ("Prime Day 2") scheduled for next week, we can safely say that the 2022 holiday season has officially kicked off.  Most retailers and commercial property owners were hoping for a return to normalcy this year, and there are signs that this year will look closer to pre-pandemic holidays than in 2021 and 2022. Nevertheless, we’ve reviewed visitation data trends to come up with a list of key themes that property owners and retailers should be aware of as they finalize their year-end and early 2023 plans.

1. Consumer Behavior will be Bifurcated

Much like the broader retail sector throughout 2022, we believe this holiday season will see differing behavior between higher-end consumers and lower-end consumers. Despite a volatile year in the financial and housing markets – two factors that have typically contributed to "wealth effect" spending among higher-end consumers – we haven’t seen much change in behavior in higher-end consumers at the retailers we’ve examined this year. Put another way, consumers with household incomes above $200K continue to shop at the same retailers they did in 2021 at roughly the same cadence. While we’ve seen some declines in visitation to luxury retailers (below), our data suggests that the visitation declines have been largely the result of fewer visits from more aspirational middle-income consumers that have traded out because of inflation and other macro headwinds and the absence of pandemic-related stimulus checks.

We’ve also seen evidence of lower-income consumers trading down. Darden recently noted that inflation remains a headwind for households making less than $50K per year, and that its restaurant brands that have greater exposure to this customer segment (Olive Garden and Cheddar’s) were seeing softer visit trends compared to the rest of their portfolio. This is a theme we’ve heard from a number of other retail and restaurant brands this year, suggesting that lower-income consumers will remain value-focused this holiday season.

2. Shades of 2018?

While the current period of inflation is novel to recent history, the rapid rise in interest rates and its negative affect on asset values (vis-a-vis the stock market and housing) does have a recent parallel. In 4Q18, the Federal Reserve increased rates (albeit at a far more muted pace than its current pace), which resulted in housing screeching to a halt and the stock market tanking (the NASDAQ fell 23%). Many will recall that this was the time period when President Trump was on the warpath for Fed Chairman Jerome Powell’s scalp.

2018 was an average year for retail sales heading into the fourth quarter, but then substantially softened during November and December, as is shown in the table below. Thanksgiving was also early that year (November 22nd) which drew holding sales into November. The pace of "gift-like" retail sales, or GAFO, slowed by three-fourths for the holiday from its pre-November trend, falling to 0.5% YoY growth from its prior pace of 2.0%. Home related goods slowed more severely, to declines, as did consumer electronics, sporting goods, hobby, and department stores. Looking at the retail categories, the consumer traded down in retailer formats to value. Club and discount stores, as well as BevAlc retailers, bucked the trend and accelerated during the holiday season. As such, it seems highly probable that this Holiday Season will shine on Costco, Sam’s, BJ’s, Total Wine & More, and their kind.

3. Mass Merchants Benefit from Consumer Trade Down

While the idea of bifurcated consumer behavior isn’t exactly news, one of the questions that comes up most often in our discussions with CRE and retailer executive teams is how middle-income consumers will behave this holiday season? We’ve previously shown a shift in consumer mindset around April 2022 this year, with value grocery chains (including hard discounters) and dollar stores seeing relative outperformance with respect to visits (below). Our trade area suggests that some of this shift was because of lower-income households, but we’ve also seen a shift in middle-income consumer behavior as well.

When it pre-announced its 2Q22 results in late July, Walmart noted that it was seeing signs of trading down, particularly in the grocery category. Our data confirms this shift thus far in 2022, as households under $50K in household income represent a slightly smaller percentage of Walmart’s consolidated store trade areas compared to 2019 (with these consumers shifting to dollar stores and hard discounters like Aldi) but households above $75K in household income representing a slightly larger percentage. With inflation remaining top-of-mind for many middle-income households, we expect players like Walmart and Target will continue to outperform on a relative basis this holiday season.

4. Over-Inventoried Retailers and Amazon’s Prime Early Access Day Starts the Holiday Selling Season Earlier

With many retailers – especially apparel retailers – still looking to clear bloated inventories from earlier supply chain bottlenecks and Amazon throwing a wrench into many’s retailers plans with next week’s Prime Day event, we expect holiday shopping to be pulled forward even earlier this year, potentially diminishing the impact of key Black Friday shopping days (continuing a trend that has already been taking place the past several years). Amazon likely announced this move to pull-forward and smooth-out its Black Friday and Cyber Monday peaks, but we believe it will have a ripple effect across much of the retail sector in 2022. has examined the extended holiday selling season in the past – see below for visitation trends from last year’s Black Friday compared to 2019 – and we expect these trends to be even more pronounced this holiday season.

5. Continued Focus on Services over Physical Goods

A trend that caught retailers off-guard this year was consumers’ shift away from physical goods to out-of-home services. Some of this trend should have been expected as pandemic concerns dissipated and consumers were eager to get back in the public, but service and service-adjacent categories like beauty and wellness will continue to be one of the strongest-performing categories in discretionary retail (below).

Adding further support the idea that services will remain a key holiday category is a recent JP Morgan survey. According to the survey, 75% of respondents choose ‘experience-related’ spend as their number-one priority for non-essential spend in the next 12 months. This includes holidays abroad (27%), staycations (15%), days out (13%), meals out (11%), and drinks out (7%).

6. Home Entertaining Retailers Will See Increased Demand

As a retail category, home furnishings have been one of the hardest hit during 2022 amid greater uncertainty in the broader housing market. As we pointed out earlier this year, inventory bottlenecks and higher prices for those retailers that manufacture overseas have also been headwinds for retailers in this category, especially for big-ticket items like furniture. However, we also made the point that execution was equally important for retailers in this category, and that names like Arhaus and Crate & Barrel have outperformed their direct competitors from a visitation standpoint.

The home furnishing category will likely lag other discretionary categories with respect to visits this holiday season, but with most pandemic restrictions lifted, we expect entertaining will be a key theme this holiday. Retailers like Crate & Barrel, At Home, and HomeGoods that specialize in entertaining products will see increased demand ahead of the holidays (and continuing their outperformance relative to the home furnishing retail category, as shown below on a Yo3Y basis). This is especially true with so much movement among consumers to new markets the past few years – something we outlined in our recent migration whitepaper –and wanting to show off new homes and apartments. In addition to home entertaining categories, we’ve heard from several housewares retailers that food preservation products are seeing increased demand ahead of the holidays due to inflationary conditions consumers faced much of this year.

7. Tough Year for Consumer Electronics?

In a typical year, you can count on consumer electronics being at the top of everyone’s "Hot Items for the Holiday" list. This year is no typical year, however, and there are very few products driving demand to consumer electronics retailers ahead of the holiday. The consumer electronics retail category was one of the winners during the pandemic as more consumers worked and schooled from home and needed technology upgrades (and many of those purchases taking place online as opposed to in store).  The consumer electronics category has seen a reversion to the mean as that demand has waned and there have been fewer new product cycles to stimulate consumer demand. This trend is likely to carry into the 2022 holiday season.

8. More Store-in-Store Partnerships on the Horizon

As we outlined earlier this year, many consumer brands are finding success partnering with larger-box retailers for store-in-store partnerships (including Sephora and Kohl’s, Ulta and Target, Toys 'R Us and Macy’s, Disney and Target, and Petco and Lowe’s). Results have differed by brand and by category, but typically we’ve seen a mid-single-digit lift in visitation trends and an expansion in trade area when larger retailers add these store-in-store partners.

Last week ahead of the holiday selling period, Dick’s Sporting Goods and Peloton announced a store-in-store partnership where Peloton will sell its stationary bikes, treadmills, Peloton Guide (a training system that utilizes a camera to track a person's movements) and other products inside of more than 100 stores. The store-in-stores will be staffed by Dick’s employees, and deliveries will be fulfilled by Peloton’s in-home delivery and installation teams.

Ultimately, we don't see this decision isn’t surprising because of several reasons, and we would not be surprised to see more store-in-store partnerships announced ahead of the holiday season. One, it’s become more expensive for traditionally digital brands to acquire customers due to changes in Apple and Google security and privacy actions. We believe this was a key factor behind Peloton’s decision to close a "significant number" of its stores. According to its press release about the partnership, Peloton management views Dick’s as a way to "reach new audiences, expand its total addressable market, drive member growth, and expand its U.S. geographic footprint" while Dick’s Sporting Goods likely sees the opportunity to differentiate its product assortment and add new experiential elements (while diversifying the way it monetizes its store square footage). Visitation trends to Dick’s and Peloton’s stores also indicate why Peloton saw the urgency to make this move (admittedly, some of the recent declines in Peloton visits at the chain level have been because of store closures). We believe these factors will be considerations in upcoming store-in-store partnerships.

9. Calendar Distortions (Upon Distortions Upon Distortions)

Thanksgiving falls on November 24 this year, versus November 25 in 2021 and November 28 in 2019. This adds one additional shopping day to the Thanksgiving-to-Christmas period versus last year and four days versus the holiday shopping period three years ago. (We continue to believe that 2019 is the best baseline for judging the pace of business for most retail categories.)

Do these days create a deeper shallow between the season’s two shoulders? Do consumer buy more? It would seem reasonable to expect that they entertain more. Should this come to pass, bakery, grocery, and BevAlc stores would seem be in good position (which we touched on above). However, if the spend is the same and it is spread over more days, that can trick one’s thinking about the pace of business. The same dollar spent over 29 days (November 25 through December 24) compared to the 26 days in 2019 will make the 2022 period look down 10% YoY on a given day (or stretch of days).

Moreover, there is the question of what are the right days to compare for key holiday shopping days? Yes, the day after Thanksgiving (November 25, 2022) to its comparable period in 2019 (November 29) makes sense. How about December 5, 2022? Which day should one compare that to? Should we compare that to the first Saturday in December 2019 or the 7th, which is a 2-day shift versus a 4-day shift. How should we consider Thanksgiving Day itself? In 2019, many retailers were open on Thanksgiving Day. Not so many in 2022. How do we consider that day? How should we consider that we have 5 weekends between the two dates versus 4 in 2019?

10. More Santa Sightings at the Mall

We spoke with several CRE marketing managers about how their properties plan to approach the 2022 holiday season. Similar to consumer’s increased focus on experiences and entertaining products this holiday season, experiences and entertainment were also key themes in these discussions. In particular, a focus on Santa came up consistently (no more plexiglass or social distancing required!) as did more ways to enjoy Santa, including "Big Santa’s" that will be lit up during special events, Santa trolleys, and Santa dance battles. From an experiential standpoint, we’ve also heard that many malls will be featuring holiday markets (with a carefully curated selection of giftable products from mostly local and digitally native brands), "snow" showers at select outdoor centers, and wider lighting installations and experiences.

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RJ Hottovy

Head of Analytical Research,

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank. R.J. also brings a wealth of experience with early-stage investments as a committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he advised over 50 food service companies on more than $200 million in early-stage capital raises and M&A transactions.

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