Black Friday and Cyber Monday were big. Now retailers have to keep it going.

  • By Teresa Rivas,
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The holiday shopping season is off to a strong start for retailers, but competition remains omnipresent.

Where we were: A robust fourth quarter in 2017 set high expectations for this year, and initial sales figures are encouraging.

Where we’re headed: Retailers will have to continue investing in their business and new technology as the industry landscape evolves.

Now that the dust has cleared on Cyber Monday—which Adobe Analytics pegged as a $7.9-billion day, a 19% year-over-year increase—one thing that’s clear is that Americans just spent a lot of money.

Black Friday still reigns supreme, with sales 28% higher that day than on Monday, according to the market research firm Nosto. The research firm Criteo pegged Black Friday’s sales at 4.87 times the average October 2018 baseline, while Cyber Monday came in at 4.77 times. Yet more and more shoppers are buying on their phones, as Monday was the first time that more than half of all digital sales came from mobile devices.

All of that is good news for retailers. Stakes are high in general this year (and even higher for struggling companies), given that investors were concerned retailers wouldn’t be able to deliver a repeat of the strong 2017 holiday season. Indeed, the SPDR S&P Retail ETF (XRT), which outperformed the market for the first three quarters of 2018 and reached new all-time highs, was one of the major casualties of recent market volatility. Going into the holiday season last year, there was plenty of doom and gloom about Amazon.com (AMZN) taking over the whole industry, so it was easy for stocks to rally off depressed levels. Yet this year, investors were worried that even with a strong consumer backdrop, 2018 wouldn’t be able to support retailers’ gains.

So far, it looks as if retailers have been able to perform better than many feared. Of course there are caveats—we’ll have to see how the sector does throughout December, and companies that drive traffic and revenues through heavy discounting may be punished by the market later when those moves show up in compressed margins. But for now, it looks like traditional retailers have fended off the naysayers for another year.

Part of the turnaround is due to retailers’ reaction to e-commerce. Competition from online startups is far from new, but many traditional players were slow to invest in a digital presence, so-called omnichannel options, and the flexible shipping that consumers have come to expect. Still, better late than never.

As Harding Loevner’s Maria Lernerman and Chris Mack argue, the next frontier is getting a handle on fast fashion. Rapidly changing trends may not be great for the environment, but it’s been a boon for retailers, especially nimble, online startups that can respond quickly to changes in tastes and growing categories like street wear.

Traditional retailers need to compete for consumers’ wallet share. Companies like Zara parent Inditex (IDEXY) and H&M (HNNMY), which pioneered fast fashion, have pursued different strategies, like horizontal integration of design and marketing teams and close partnerships with local suppliers.

Elsewhere, luxury fashion brands like LVMH Moet Hennessy Louis Vuitton (LVMUY) have been using 3D printer technologies to enhance purse design, and peers have been bringing limited edition, capsule collections to market to spark interest between bigger launches.

Mack is especially excited about the opportunity for companies to “incorporate more technology to speed up product design, as well as to utilize new manufacturing technologies to develop differentiated goods.” The example of 3D technology is a good one, as simulation software and modeling helps make the design process more effective, and ultimately allows companies to “develop more-competitive products and [reduce] time to market."

While newer companies have been quick to pick up on these fast-fashion dynamics, Lernerman says, they weren’t burdened with a corporate culture or practices built in previous eras of retailing. However, she warns that “being an early adopter alone isn’t a sustainable competitive advantage.” It may be harder for some big established brands to change their habits, but “once they do begin to adapt they have many advantages over smaller companies.” Their size and scale allows them to negotiate with suppliers and manufacturers, while deeper pockets means they can invest not only in products, but technology and talent. Thus, Lernerman says, “even the laggard brands are starting to catch up. I think we might see a re-ordering of brands, where early adopters start to give ground and share back to brands that have woken up to the new reality.”

That might have sounded crazy as recently as early 2017, but this has been a year in which Macy’s (M) and Amazon stock have seen nearly identical returns. So a last-shall-be-first turnaround isn’t out of the question.

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