US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEWSpending Strength Across Ecommerce and Traditional Retail, but Uncertainty Looms Ahead

FEBRUARY 2019

Andrew Lipsman

Contributors: Rebecca Chadwick, Cindy Liu, Karin von Abrams, Yoram Wurmser

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 2

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW: SPENDING STRENGTH ACROSS ECOMMERCE AND TRADITIONAL RETAIL, BUT UNCERTAINTY LOOMS AHEAD

The 2018 holiday season was one of the best in recent years, with strong growth rates posted both online and at

brick-and-mortar on the back of a robust consumer economy. But the conditions might not be as favorable as we

look ahead to the 2019 holidays.

■ How much did retail spending increase during the 2018 holiday season? Total retail spending was up 5.4% to $998.32 billion, falling just shy of our earlier forecast of $1.002 trillion, with the shortfall coming from the unexpected drop in gas prices to end the year. Traditional retail was very strong, with brick-and-mortar sales rising 3.9% to $874.42 billion and ecommerce soaring 16.7% to $123.90 billion.

■ How much was spent online on Thanksgiving, Black Friday and Cyber Monday? Cyber Monday was the heaviest online spending day in history, with a reported $7.87 billion. Meanwhile, Thanksgiving and Black Friday both continue to experience significantly above-average growth rates as they become more important shopping days for ecommerce.

■ What is the forecast for holiday sales in 2019? We expect that the 2019 holiday season will see healthy US retail spending growth of 3.7% to $1.035 trillion. However, with several economic factors now weighing on the consumer economy, this growth rate represents a noticeable deceleration vs. 2018.

■ Which retailers were the winners and losers of the 2018 holiday season? Amazon, Walmart and Target were among the big retailers that drove strong sales increases during the holidays to finish off 2018 on a high note. Meanwhile, several department stores and mall anchors like JCPenney, Macy’s, Sears and Kohl’s struggled to capture the same momentum.

WHAT’S IN THIS REPORT? This report includes a review of the US 2018 holiday season and an early preview of the 2019 holidays, including our latest US retail and ecommerce spending forecast.

billions

Top 10 US Holiday Season Shopping Days, Ranked byRetail Ecommerce Sales, 2018

1. Cyber Monday (Nov 26) $7.87

2. Black Friday (Nov 23) $6.22

3. Thanksgiving (Nov 22) $3.68

4. Nov 25 $3.39

5. Nov 24 $3.05

6. Nov 27 $2.97

7. Green Monday (Dec 10)$2.87

8. Dec 11 $2.55

9. Dec 17 $2.52

10. Dec 9 $2.41

Note: represents activity on Adobe's platform, broader industry metricsmay varySource: Adobe, Jan 31, 2019245090 www.eMarketer.com

KEY STAT: Cyber Monday was the top spending day of the 2018 holiday season, with $7.87 billion, but Thanksgiving surprised at No. 3 with $3.68 billion.

CONTENTS2 US 2018 Holiday Season Review and 2019 Preview:

Spending Strength Across Ecommerce and Traditional Retail, but Uncertainty Looms Ahead

3 Holiday 2018 Review: Strong Consumer Economy Drives Strength Across Retail Channels

9 Holiday 2019 Preview: Risk Factors Abound

12 Looking Ahead to the 2019 Holiday Season: Key Takeaways for Retailers

12 eMarketer Interviews

13 Read Next

13 Sources

13 Editorial and Production Contributors

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 3

HOLIDAY 2018 REVIEW: STRONG CONSUMER ECONOMY DRIVES STRENGTH ACROSS RETAIL CHANNELS

The 2018 retail holiday season was exceptionally

strong, having some of the highest growth rates

for both brick-and-mortar and ecommerce sales

since 2011.

Total retail holiday season sales climbed 5.4% to $998.32 billion, bolstered by strength in brick-and-mortar, which increased 3.9% to $874.42 billion, or seven out of every eight dollars spent during the holidays. Retail ecommerce sales jumped 16.7% to $123.90 billion, fueled largely by strong gains in mobile commerce, which surged 31.7% to $53.28 billion. Although mobile accounted for just 5.3% of total retail sales, it drove 25.3% of the season’s overall spending gains.

billions, % change and % of totalUS Retail Holiday Season Sales, 2017 & 2018

Brick-and-mortar/in-store retail

Retailecommerce*

—Desktop and other (includes voice)

—Mobile

Total

2017

$841.41

$106.14

$65.28

$40.44

$947.55

2018

$874.42

$123.90

$70.62

$53.28

$998.32

%change

3.9%

16.7%

7.5%

31.7%

5.4%

% oftotal 2018spending

87.6%

12.4%

7.1%

5.3%

100.0%

% of 2018growth

contribution

65.0%

35.0%

9.7%

25.3%

100.0%

Note: sales are for Nov and Dec of each year; excludes travel and eventtickets, payments (such as bill pay, taxes or money transfers), food servicesand drinking place sales, gambling and other vice good sales; *includesproducts or services ordered using the internet via mobile devices,regardless of the method of payment or fulfillmentSource: eMarketer, Feb 2019245111 www.eMarketer.com

Total holiday sales performed very much in line with our pre-holiday expectations, but did fall on the low side of our $1 trillion forecast by a couple billion dollars. However, that shortfall was largely attributable to an unexpected drop in US gas prices, with fuel sales included in our definition of total retail. National gas prices, after spending about half of 2018 over $2.75 per gallon and over $2.90 as recently as October, unexpectedly dropped to $2.30 by the end of December, according to GasBuddy. Performance in core retail categories, across both brick-and-mortar and ecommerce, were very close to our preseason estimates.

FAVORABLE ECONOMIC CONDITIONS DRIVE SPENDING SURGE The continued surge in consumer spending through the holidays can be attributed to the overall favorable economic conditions. With GDP growth escalating, the unemployment rate near record lows, wage growth on the rise and consumer confidence at multiyear highs, Americans brought more disposable income into the holiday season. According to CivicScience, 30% of US holiday shoppers said they spent more than they intended during the 2018 holiday season vs. 21% who said they spent less.

% of respondents

Did US Holiday Shoppers Spend More or Less thanThey Intended to on the 2018 Holiday Season?

Stayed within budget 48%

Spent more 30%

Spent less 21%

Note: n=1,757 ages 18+; numbers may not add up to 100% due to roundingSource: CivicScience as cited in company blog, Jan 3, 2019244222 www.eMarketer.com

Nevertheless, even optimistic consumers are price-sensitive and have come to expect incentives to purchase during the holidays. Deloitte’s “2018 Holiday Survey” found that 95% of consumers said price discounts most appealed to them, while 75% said they wanted free shipping.

% of respondents

What 2018 Holiday Season Promotional Offers MostAppeal to US Internet Users?

Price discounts 95%

Free shipping 75%

Free gifts 52%

Loyalty points 32%

Buy more, save more29%

Exchange offers9%

Note: n=3,275 ages 18+Source: Deloitte, "2018 Holiday Survey of Consumers," Oct 23, 2018242951 www.eMarketer.com

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 4

BRIGHT SPOTS FOR BRICK-AND-MORTAR Brick-and-mortar retail sales strengthened throughout 2018 and continued to thrive during the holidays, especially for those that invested in a better customer experience. For many, that meant store upgrades to provide a cleaner, more well-lit environment and higher-quality merchandising displays. Executing on in-store technology also helped streamline checkout and equip sales staff to better serve their customers.

All of these improvements contributed to reducing the hassle and making shopping an all-around more enjoyable experience. Some merchants doubled down on a more amped-up holiday store experience to get shoppers, while others opted to project calm in the eye of the retail storm. But both tactics focused on experience to lure shoppers into stores.

“Some of the strategies that seem to be working for customers are things like ‘retail-tainment’ and brand events,” said Katherine Cullen, director of retail and consumer insights at the National Retail Federation (NRF). “Nearly half of consumers say they attended at least one retail-tainment event in the past year, and of those, 82% are interested in similar events in the future.”

% of respondents

US Internet Users Who Attended a Retailer or BrandEvent* in the Past Year, by Generation, Nov 2018

Baby boomers (born 1946-1964)26%

Generation X (1965-1980) 47%

Millennials (1981-1994) 66%

Generation Z (1995-2000) 53%

Total 46%

Note: *e.g., early/exclusive access to item/sale, a party, a pop-up shopSource: National Retail Federation (NRF), "2018/2019 Winter ConsumerView," Jan 15, 2019244590 www.eMarketer.com

And some of these implementations aren’t always flashy, but instead relatively simple and inexpensive. On Thanksgiving, Walmart offered shoppers free coffee and cookies to add to the festive holiday atmosphere. Target remodeled hundreds of its stores to make more room for toys—a category that was up for grabs with Toys R Us filing for bankruptcy in 2018—and introduced “hours of joy” events, featuring fictional character meet and greets that allowed kids to test-drive the season’s most popular toys. And direct-to-consumer (D2C) home furnishings brand Burrow offered free drinks and a homey environment where shoppers could relax and watch movies while testing out the furniture.

For more information on D2C brands, see our January 2019 report “Direct-to-Consumer Brands 2019: How Digital Natives Are Disrupting Traditional Brands and Retailers.”

Brick-and-mortar merchants also lured shoppers to their stores with flexible fulfillment options—most notably, buy online, pick up in-store (BOPUS), aka click-and-collect services. “Retailers that seem to be performing well are those that recognized the convergence of digital and physical and have invested in building a strong multichannel experience,” Cullen said. “We know that fulfillment options like buy online, pick up in-store appeal to shoppers, and this was a big focus for many retailers over the 2018 holiday season.”

According to Adobe, holiday season BOPUS orders were up a staggering 50% from the prior year among multichannel retailers.

+50%Year-over-year growth in US BOPUS orders

during the �ve-day holiday weekend.

Adobe Analytics, “Holiday Recap 2018,” Jan 15, 2019

www.eMarketer.com

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The primary reason for this surge is to avoid shipping fees, according to NRF research conducted by Toluna. Close to two-thirds of US internet users listed this option as a way to avoid paying for shipping costs, followed by immediacy (37%) and retailer discounts (36%). Package security (23%) was also a factor and (perhaps underappreciated) motivator behind in-store pickup.

% of respondents, Nov 2018

Why Are US Internet Users Choosing Buy Online, PickUp In-Store?

To avoid paying for shipping64%

Needed something right away37%

Received a discount or promotion to try it36%

Had to go to the store anyway31%

It was more secure than having items delivered to my home23%

To see the item in person20%

Note: ages 18+; among those who use BOPUSSource: National Retail Federation (NRF) with Toluna Analytics, "2018/2019Winter Consumer View," Jan 15, 2019244592 www.eMarketer.com

The fact that retailers are providing direct financial incentives demonstrates how driving click-and-collect activity can turn into a win-win for consumers and particularly retailers, who can bolster margins and boost incremental sales.

ONLINE OUTPACES FORECASTS ON STRENGTH OF SMARTPHONE COMMERCE Brick-and-mortar retail may have been a surprising bright spot this year, but its gains did not come at the expense of ecommerce. In fact, online spending performed noticeably better than the industry’s already optimistic expectations.

Preseason predictions from Adobe projected that ecommerce spending would rise 14.8% to $124 billion, but its final tally showed online sales jumping 16.5% to $126 billion. Comscore forecast growth in online holiday spending at 18% to 19% and saw results come in above the range, growing 19.4% to $115 billion.

Gains in ecommerce this season were fueled largely by an increase in mobile shopping and buying, particularly on smartphones. According to Adobe, mobile traffic

accounted for 60% of online shopping traffic and 40% of sales, with smartphones accounting for 51% of traffic and 31% revenues. Compared with last year, smartphone commerce jumped 56.4%, while sales via desktops and tablets both increased by single-digit percentages: 4.7% and 4.3%, respectively.

Revenues Visits

% of total

Share of 2018 US Holiday Season* Retail EcommerceSite Visits vs. Revenues, by Device

Note: represents activity on Adobe's platform, broader industry metricsmay vary; *Nov-DecSource: Adobe, "Holiday Recap 2018," Jan 15, 2019244554 www.eMarketer.com

Desktop60%

Desktop40%

Smartphone31%

Smartphone51%

Tablet9%

Tablet9%

SHIPPING WAS FREE, FAST AND ON TIME Double-digit growth in ecommerce spending continues to be fueled by increasing convenience and decreasing costs to the consumer. According to Salesforce, US online shoppers benefitted from even higher levels of discounting and incidence of free shipping on their purchases in 2018. Across every week of the holidays between Thanksgiving and Christmas, the percentage of orders that were discounted climbed vs. last year, with a peak of 30% during the week of November 20-26.

% of total

Share of US 2017 vs. 2018 Holiday Season Orders thatWere Discounted vs. Shipped Free, by ShoppingPeriod

2017 2018

Cyber Week

Post-Cyber Week

Mid-season

Pre-Christmas

Christmas &Boxing Week

Discounted

29%

24%

18%

19%

25%

Shippedfree

84%

73%

70%

67%

64%

Discounted

30%

25%

21%

22%

24%

Shippedfree

85%

76%

75%

71%

68%

Note: represents activity tracked by Salesforce, broader industry metricsmay vary; Cyber Week: Tues, Nov 20–Mon, Nov 26; Post-Cyber Week: Tues,Nov 27–Mon, Dec 3; Mid-Season: Tues, Dec 4–Mon, Dec 10; Pre-Christmas:Tues, Dec 11–Mon, Dec 17; Christmas and Boxing Week: Tues, Dec 18–Wed,Dec 26Source: Salesforce, "2018 Holiday Season Shopping Report," Jan 14, 2019244502 www.eMarketer.com

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The same was true of the percentage of orders with free shipping, which peaked at 85% during that same week. Free shipping was likely boosted by competition during the holidays, as Target promoted free two-day shipping on all orders with no minimum purchase, precipitating a response from Amazon with the same offer for all US customers, including non-Prime members.

As free shipping drives online order growth, logistics can become more of a challenge. But according to ShipMatrix, the on-time delivery rates for each of the three major providers in the US neared perfection. US Postal Service led the tightly clustered trio with 98.8% of shipments delivered on time, followed closely by UPS at 98.3% and FedEx at 97.6%. UPS showed the greatest improvement vs. 2017 (up 3 percentage points), while all three raised the bar on their performance from the prior year.

% of total and % change

On-Time 2017 vs. 2018 Holiday Season* US DeliveryRate for FedEx, UPS and the US Postal Service

2017 2018 % change

FedEx 97.4% 97.6% 0.2%

UPS 95.3% 98.3% 3.0%

US Postal Service 98.2% 98.8% 0.6%

Note: represents activity tracked by ShipMatrix, broader industry metricsmay vary; US Postal Service data is for USPS Parcel Select, a grounddelivery service for bulk packages; FedEx and UPS data is for all servicescombined; *2017 holiday season was from November 19-December 30 andthe 2018 holiday season was from November 18-December 29Source: ShipMatrix as cited in Commercial Apparel, Jan 8, 2019244559 www.eMarketer.com

“The enormous focus of the last few years on their ability to handle the 50%-plus spike in volume during peak season created a heightened importance on doing [on-time delivery] well,” said Satish Jindel, president of ShipMatrix. “Having 32 days for peak season helped all three carriers.” Jindel pointed to expanded capacity and technology improvements in helping UPS make the greatest strides.

THANKSGIVING, BLACK FRIDAY AND CYBER MONDAY Online holiday shopping got out to a fast start this year, well before the peak promotional period kicking off on Thanksgiving. During the first three weeks of the holiday season (November 1-20), ecommerce sales jumped ahead of pace with 16.7% growth to $31.9 billion, according to Adobe—nearly 2 percentage points ahead of the company’s holiday growth forecast.

Michael Klein, Adobe’s director of industry strategy and marketing for retail, travel and CPG, attributed the early start to urgency in grabbing the high-demand products. “There are some items we know will sell out, so ‘fear of missing out’ is certainly something that will draw in early purchases,” he said. “We also know that consumer confidence at that time of the year was very high, so that certainly contributed to it.”

According to an NRF survey conducted by Prosper Insights & Analytics, 165.8 million US adults shopped across channels during the five-day period from Thanksgiving through Cyber Monday. More than half of respondents (54%) shopped both online and in-store, and in a sign of the times, online-only shoppers (25%) outnumbered in-store-only shoppers (21%).

millions and % of total

How Did US Internet Users Shop During ThanksgivingWeekend 2018*?

Multichannel89.7 (54%)

Total=165.8 million

Online only41.4 (25%)

In-store only34.7 (21%)

Note: ages 18+; *Thanksgiving Day, Nov 22-Cyber Monday, Nov 27Source: National Retail Federation (NRF), "Thanksgiving Holiday TrendsConsumer Survey" conducted by Prosper Insights & Analytics, Nov 27, 2018243364 www.eMarketer.com

Holiday shopping now begins in earnest on Thanksgiving as the lead-in to Black Friday, followed by the rest of the holiday weekend, and finally culminating on Cyber Monday as the heaviest online shopping day of the year (together the five-day period is known as the “Cyber Five”). Historically these important promotional events were segregated into offline and online holidays, but in recent years—and particularly since the advent of mobile shopping—the lines have blurred.

Thanksgiving was once a day for family, feasts and football, but when brick-and-mortar retailers opened the floodgates to Black Friday with early store openings in 2011, a new day for shopping began to take shape. Around the same time, smartphones joined Americans at the dinner table and on their couches, thus cementing the day’s status as a day retailers needed to take seriously.

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And the event has grown only more important over time. According to Adobe, Thanksgiving Day generated $3.7 billion in ecommerce sales with an impressive 28.0% growth rate. Even more surprising, Thanksgiving ranked as the third-heaviest online spending day of the season.

billions and % change vs. prior year

US Cyber Week Retail Ecommerce Sales, by ShoppingDay, 2018

Thanksgiving(Nov 22)

$3.7(28.0%)

Black Friday(Nov 23)

$6.2(23.6%)

Small BusinessSaturday(Nov 24)

$3.0(25.5%)

SuperSunday(Nov 25)

$3.4(25.6%)

CyberMonday(Nov 26)

$7.9(19.7%)

Note: represents activity on Adobe's platform, broader industry metricsmay vary; total 2018 Cyber Week retail ecommerce sales=$24.2 billionSource: Adobe, "Holiday Recap 2018," Jan 15, 2019244931 www.eMarketer.com

Black Friday immediately followed with 23.6% growth to $6.2 billion in sales—a remarkably strong rate on an already substantial sales figure. That story stands in contrast to the increasingly popular narrative that Black Friday is somehow becoming less important, which likely traces to the changing patterns at brick-and-mortar retail. According to ShopperTrak, Black Friday foot traffic edged down slightly by 1%, but Thanksgiving Day traffic increased to help offset that effect.

“The idea that Black Friday is losing significance has always confused me,” said Brian Field, senior director of retail consulting at ShopperTrak. “You would have to probably triple Super Saturday [the Saturday before Christmas] traffic to make it as significant as Black Friday. That’s how great the impact of Black Friday is.”

In other words, Black Friday remains a massive offline shopping event, and when coupled with its increasingly significant online component, remains far and away the most important shopping day of the year. Black Friday’s considerable ecommerce gains have a lot to do with mobile. Whether Americans are hitting the stores or lounging around at home that day, mobile shopping is likely a part of the equation.

The Cyber Five period was punctuated by the $7.9 billion in spending on Cyber Monday, ranking it as the heaviest online spending day of the year once again, according to Adobe. $5.0 billion—or about 63% of sales—came from desktop, a much higher percentage than the desktop sales on Thanksgiving and Black Friday, both of which were more mobile-heavy.

Online sales growth for the big promotional days was driven by improved spend per visit. Comscore data showed that, for each of the three days, growth in spending outstripped growth in digital retail visits by at least double, which could be due to better conversion, increased average order values (AOVs) or a combination of the two. Similar to the Adobe figures, the strongest growth rates were seen on Thanksgiving, followed by Black Friday and finally Cyber Monday.

% change

US Thanksgiving, Black Friday and Cyber MondayTotal Digital Retail Site Visits vs. Digital Spending,2017 vs. 2018

Digital retail sitevisits

Digital spending

Thanksgiving 15% 38%

Black Friday 13% 36%

Cyber Monday 11% 28%

Note: includes desktop and mobileSource: Comscore Multiplatform, Comscore e-Commerce andm-Commerce as cited in company blog, Nov 29, 2018243680 www.eMarketer.com

APPAREL SHINES AMONG HOLIDAY PRODUCT CATEGORIES Despite the overall growth across the retail sector, this past holiday season had its share of winners and losers. Performance was dictated both by broader market trends and the specific strategies and tactics of individual retailers to capture their fair share of consumer spending growth.

Most product categories experienced positive growth rates, but not every sector was immune to bad news. Going into the holiday season, we projected that apparel/accessories and consumer electronics would be the top categories fueling growth—that prediction turned out to be half true.

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 8

Apparel and accessories was the true standout this holiday season. As one of the biggest product categories, it is often a bellwether for discretionary retail and tends to align pretty closely with the overall growth picture—both for online and brick-and-mortar. This year, the category posted results well ahead of industry benchmarks. Mastercard reported that total retail sales for apparel in the US grew 7.9% year over year, its best growth rate since 2010 and nearly 3 percentage points higher than total retail growth of 5.1%. Rakuten Intelligence reported holiday retail ecommerce sales for the apparel category climbed 27%, outpacing the overall holiday sales benchmark of 21%.

% change vs. same period of prior year

Holiday Retail Ecommerce Sales Growth, by Category,Nov 1-Dec 31, 2018

Food 49%

Apparel 27%

Home improvement 23%

Home 21%

Toys 18%

Health & beauty 17%

Shoes 17%

Electronics 16%

Sporting goods 12%

Other 17%

Total 21%

Note: represents activity on Rakuten Intelligence's platform, broaderindustry metrics may varySource: Rakuten as cited in company blog, Jan 7, 2019245098 www.eMarketer.com

A caveat to apparel’s success, however, is the category’s high incidence of returns, particularly for online purchases. While improvements in the ease of returns has helped grow the category online, it has not necessarily done so in the most profitable manner. But a November 2018 study from retail postpurchase solutions provider Narvar suggests that apparel may be improving on this dimension. While apparel still topped the list of categories that US digital shoppers are most likely to return, it experienced a big drop over the past year—from 43% to 29% of respondents.

% of respondents, 2017 & 2018

What Product Category Are US Digital Shoppers MostLikely to Return from a Digital Purchase?

Apparel43%

29%

Consumer electronics12%

16%

Home products12%

11%

Footwear & accessories11%

11%

Other22%

33%

2017 2018

Note: ages 21-65Source: Narvar, "The State of Returns: What Today's Shoppers Expect," Nov14, 2018243205 www.eMarketer.com

Unlike its counterpart, the electronics and appliances category struggled to tread water this past holiday season. Mastercard reported that total retail sales for the category fell 0.7%. Meanwhile, Rakuten Intelligence reported that ecommerce sales for electronics grew 16%, several points below the benchmark.

Why did the category, which might otherwise appear to be booming thanks to the rapidly expanding slate of smart home products like smart speakers, video doorbells and security cameras, fall short this year? A key culprit might be softness among large household appliances, which despite having a strong past few years as consumers invested in home upgrades, have recently taken a hit.

In a January 2019 article from The New York Times, economics reporter Jim Tankersley wrote that “You may not have appreciated it at the time—golden eras have a habit of coming and going like that—but a five-year stretch that started in 2013 was a pretty great time to buy a washing machine.” Now, however, tariffs are having a noticeable impact on their price tags, which has deterred consumers from perpetuating this upgrade cycle. According to the Bureau of Labor Statistics, as cited in The New York Times, following several consecutive years of year-over-year price declines for washing machines, prices in 2018 surged by 13%.

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On the consumer electronics side, Ken Cassar, vice president and principal analyst at Rakuten Intelligence, in a blog post attributed the softness to “the continued move toward lower prices in the category: the TV that cost me $1,000 last year might have cost as little as $500 this year.”

AMAZON TOPS ONLINE RETAILERS, BUT BRICK-AND-MORTARS ALSO FARE WELL The conversation for top-performing individual retailers begins with Amazon, which casts a long shadow over the retail sector. According to a July 2018 RetailMeNot survey of retailers conducted by Kelton, 85% of respondents either completely agree or somewhat agree that they feel more pressure to compete with Amazon during the holidays than other times of year.

% of respondents, July 2018

Do US Retailers Agree They Feel More Pressure to Compete with Amazon During the Holiday Season than Other Times of the Year?

Completely agree50%Somewhat agree

35%

Somewhat disagree

10%

Completely disagree4%

Note: n=203; numbers may not add up to 100% due to roundingSource: RetailMeNot, "2018 Holiday Insights Guide" conducted by Kelton,Sep 20, 2018241629 www.eMarketer.com

Not surprisingly, Amazon tops the list of most-visited websites during the holidays. Comscore data for December 2018 found that the number of unique visitors to Amazon sites reached 206.1 million, up 4% from 2017. Amazon had a record-breaking holiday season with the new Echo Dot and Fire TV Stick 4K with Alexa Voice Remote ranking as its best-sellers, according to the company’s post-Christmas press release. “This season was our best yet, and we look forward to continuing to bring our customers what they want, in ways most convenient for them in 2019,” said Jeff Wilke, CEO of Worldwide Consumer at Amazon. “In the US alone, more than 1 billion items shipped for free this holiday with Prime.”

millions and % change vs. prior year

Top 10 US Retail Sites, Ranked by Unique Visitors, Dec 2018

1. Amazon sites 206.1 (4%)

2. Walmart 131.9 (4%)

3. eBay 109.4 (-3%)

4. Target 79.1 (-5%)

5. Apple 72.8 (13%)

6. Kohl's 59.1 (1%)

7. Etsy 56.0 (18%)

8. Best Buy 55.0 (6%)

9. Samsung 52.0 (17%)

10. Macy's 46.1 (-7%)

Note: ages 18+; desktop and mobile; includes display and video viabrowsers and mobile appsSource: Comscore, Jan 17, 2019244777 www.eMarketer.com

Though Amazon once again flexed its muscles, brick-and-mortar retailers also reached the winner’s circle by leveraging their competitive advantages. “Something that stood out to me is the counterbalance of physical stores against online-only retailers like Amazon, because they were able to truly leverage those last-minute purchases from their physical store footprints,” said Ed Kennedy, senior director of commerce at Episerver.

Walmart took advantage of its expansive store footprint to drive click-and-collect purchases and command a strong No. 2 position, with 131.9 million online visitors; Target ranked fourth with 79.1 million. Best Buy posted a solid gain, growing 6% to 55.0 million visitors to rank eighth.

On the online pureplay side of the ledger, eBay ranked third overall with 109.4 million visitors, while Etsy climbed two spots to No. 7 with 56.0 million visitors, an 18% jump year over year. The fast-rising marketplace for handmade crafts has proved to be an ideal destination for bespoke and unique holiday gifts.

HOLIDAY 2019 PREVIEW: RISK FACTORS ABOUND

Retailers basking in the glow of the 2018 holiday

season will need to keep their revelry in check as they

pivot their attention to early-stage planning for the

2019 holidays. And the outlook is not nearly as rosy,

with economic volatility and other market factors on

the horizon.

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MACROECONOMIC FACTORS GROWING MORE VOLATILE While macroeconomic conditions can be difficult to predict, the 2019 landscape looks to be on shakier ground than in 2018. The confluence of a strong labor market, positive consumer sentiment, an elevated stock market and modest price inflation were all factors that bolstered the retail market last year, but 2019 is less likely to be as fortuitous.

At the moment, the labor market appears to be on the strongest footing. According to the US Bureau of Labor Statistics (BLS), nonfarm payrolls grew by 312,000 in December 2018 and 304,000 in January 2019, some of the best readings since the earliest days of climbing out of the Great Recession. Meanwhile, real wage growth also continued to tick higher amid the tight labor market, posting a 3.2% year-over-year gain in December to close out the year.

These factors typically provide a sturdy foundation for positive consumer sentiment, but recent data has shown a sharp decline. The University of Michigan Consumer Sentiment Index dropped to 90.7 in January, down from 98.3 in December and well below the consensus estimates of 96.8, with concerns over the partial government shutdown weighing on consumers’ minds.

The economic picture gets even murkier with the stock market, which experienced a sharp downturn to end 2018 as the Dow plunged 8.7% to mark the worst December since the Great Depression. Having begun 2018 on a sharp upswing, the market reversed course to end the year in negative territory and ramped up chatter of a major market correction and looming recession. Despite its recent rebound in early 2019, concerns of an impending downturn persist. Should it materialize, there would likely be a negative wealth effect for affluent consumers.

Finally, and perhaps most significantly, rising prices could crimp the spending habits of US consumers in 2019. The first risk factor is the trade war with China, which increases the cost of many imports across retail sectors—on everything from furniture to consumer electronics to apparel—the effects of which have not yet been fully realized. Meanwhile, a tight labor market and growing wages has the Fed continuing to raise interest rates, which could slow down the massive US housing market and the retail expenditure associated with updating and furnishing new homes. One possible buffer to rising consumer prices is the recent drop in

gas prices, which has the effect of a large tax cut for US consumers that can be funneled right back into the consumer economy.

RISK OF CONTAGION IN ONGOING RETAIL APOCALYPSE Despite overall consumer spending habits, the shift away from consumer footfall in shopping malls continues, save for a recent uptick in December, as seasonal retail flooded into vacant storefronts. According to commercial real estate data provider Reis, the mall retail vacancy rate improved marginally to 9.0% in Q4 2018 from 9.1% the prior quarter. The numbers were noteworthy only because they showed a rare—and what will ultimately prove temporary—reversal in the trend.

Almost immediately following the 2018 holidays, we were once again met with headlines of more store closures on the horizon. Sears continues to shutter locations; Gymboree announced its bankruptcy filing in early January as it faces closures for its 900 locations; and department stores Macy’s, JCPenney and Kohl’s all announced store closings in the wake of a disappointing holiday season, as they look to trim their real estate footprint for underperforming stores.

Top 10 US Retailers, Ranked by Store Openings vs.Closings, Jan 1-Feb 1, 2019

Openings

1. Dollar General

2. Aldi

3. Ulta

4. Sprouts Farmers Market

5. Murphy USA

6. Costco

7. Casey's

8. Indochino

9. Shopko

10. Dry Goods

975

159

80

30

27

20

20

20

20

19

Closings

1. Gymboree

2. Ascena Retail

3. Destination Maternity

4. Shopko

5. Chico's

6. Sears

7. Vera Bradley

8. Kmart

9. Lowe's

10. Macy's

749

400

117

105

83

72

50

48

20

8

Note: total store openings=1,399; total store closures=1,678;closings/openings are calendarized to attribute them in the year in whichthey fell or are expected to fall; totals include retailers that haveannounced multi-year store opening plans which have been recordedbased on an estimate for each year; includes Aldi's 5-year plan foropenings until 2022Source: Coresight Research, "Weekly Store Openings and Closures Tracker2019 #5," Feb 1, 2019245112 www.eMarketer.com

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 11

Many of these store closings are part of the natural life cycle for retailers amid a period of retail transformation. “When retailers get into trouble, the easy thing to do is cut costs. Most struggling retailers have the expense optimization hammer and are always looking for the next nail,” retail consultant Steve Dennis said in a recent Forbes article. “What’s harder, but ultimately far more important, is to become truly customer-obsessed and to invest behind being more remarkable than the competition. Until that happens ... shrinking is not going to be the answer.”

The concern goes beyond just those retailers failing to succeed on their own merits, though, because they risk dragging other merchants down with them. Malls and departments stores, in particular, are in a vicious cycle that may be creating a negative contagion effect.

When mall anchors close, it gives consumers even less reason to go there and shop at adjacent retailers. When a second anchor store closes, it’s often the death knell for the entire mall.

SHORTENED 2019 HOLIDAY CALENDAR ADDS COMPLICATIONS Although shoppers made sure to take advantage of 2018’s maximum 32-day shopping period, this year will have a dislocation in the holiday calendar: Thanksgiving Day will fall late in the month on November 28, giving only 27 shopping days between Thanksgiving and Christmas. This shift puts additional strain on shoppers, retailers and logistics providers that can both constrain spending and elevate the risk of bad customer experiences.

“Given that the carriers delivered about 2.5 billion parcels during the peak season in 2018, and even if there is a [similar] increase in volume in 2019, the reduction in number of peak days from 32 to 27 will represent a 25.2% increase in average daily volume for the parcel companies,” Jindel of ShipMatrix said. “That is huge and will create a new challenge for [USPS, UPS and FedEx]. However, it will be tempered by the large increase in Amazon’s own fleet of drivers via the [delivery service partners] program.”

While Jindel ultimately believes that the parcel companies should be able to achieve similar service levels in 2019, the massive increase in expected daily volume is nevertheless a significant risk factor that could result in logjams and delays if capacity isn’t carefully planned for.

EMARKETER 2019 US RETAIL HOLIDAY SEASON FORECAST With all of the aforementioned dynamics factoring into our view, we are forecasting a solid 2019 holiday retail season featuring more moderate growth rates than those in 2018. We do expect that 2019 will see US retail spending surpass $1 trillion in November and December for the first time. Total holiday retail is expected to grow 3.7% to $1.035 trillion, with brick-and-mortar rising 2.1% to $892.86 billion and ecommerce climbing 14.9% to $142.36 billion. Mobile commerce is expected to jump 28.0% to $68.19 billion, representing 47.9% of holiday ecommerce sales.

billions and % change

US Retail and Retail Ecommerce* Holiday SeasonSales, 2014-2019

Retailecommerce

—% change 14.4% 14.1% 13.9% 16.4% 16.7% 14.9%

Brick-and-mortar/in-store retail

—% change 3.3% 1.2% 3.3% 4.1% 3.9% 2.1%

Total retailholiday sales

2014

$70.15

$772.32

$842.52

2015

$80.04

$781.82

$861.86

2016

$91.15

$807.99

$899.14

2017

$106.14

$841.41

$947.55

2018

$123.90

$874.42

$998.32

2019

$142.36

$892.86

$1,035.22

—% change 4.2% 2.3% 4.3% 5.4% 5.4% 3.7%

Note: sales are for Nov and Dec of each year; excludes travel and eventtickets, payments such as bill pay, taxes or money transfers, food servicesand drinking place sales, gambling and other vice good sales; *includesproducts or services ordered using the internet, regardless of the methodof payment or fulfillmentSource: eMarketer, Feb 2019245108 www.eMarketer.com

Cyber Monday will almost certainly rank as the heaviest online spending day once again in 2019, with a chance to reach the $10 billion threshold due to the compressed holiday calendar, which tends to concentrate even more activity on key promotional days. While $10 billion is a lofty one-day total—it would require a 27% growth rate from the $7.9 billion spent in 2018—Adobe’s Klein agrees that it is within the realm of possibility, though he believes something in the “high 9s” is more likely.

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 12

LOOKING AHEAD TO THE 2019 HOLIDAY SEASON: KEY TAKEAWAYS FOR RETAILERS ■ Pull promotions ahead, and make them count. With a short shopping season between Thanksgiving and Christmas, retailers need to kick-start holiday shopping earlier in November. But the same old promotions won’t work, and retailers must get creative. Dynamic promotions that incentivize earlier engagement, such as an additional 1% discount for every pre-Thanksgiving login, could stir earlier activity. Retailers could also band together on an industrywide promotion earlier in the season, for example on Singles’ Day (November 11), the retail phenomenon popularized by Alibaba in China. Though the event does not have mainstream awareness in the US, it is beginning to be on people’s radars.

■ Get your mobile app downloaded. With mcommerce expected to approach half of ecommerce dollars next holiday season, retailers need to get their apps downloaded on shoppers’ phones; otherwise, they miss out on the opportunity to be front and center with their customers. App promotion needs to stop being relegated to a footnote in marketing promotions and instead be introduced as a more explicit appeal. That could mean email marketing campaigns and in-store reminders, or even providing special discounts for downloading the app, adding payment details or conducting transaction. Clear the first hurdles to app usage, so by the holiday season, it can be an ingrained habit.

■ Partner closely with logistics providers to ensure smooth sailing. Retailers who don’t want to disappoint their holiday shoppers need to get ahead of the logistical challenges. Early planning and working with logistics providers can ensure that retailers have their distribution network optimized and can strategize ways to offload excess capacity at key chokepoints. 2013 was the most recent year featuring the compressed 27-day calendar between Thanksgiving and Christmas, and while many of the shipping dynamics in 2019 will be markedly different, history can offer perspective on which parts of the calendar experienced logjams and which parts of the network were overloaded.

■ Create a feel-good experience in-store. As brick-and-mortar retail reinvents itself as experience-led vs. inventory-led, retailers ought to invest in atmospheric enhancements to stimulate the senses and leave shoppers basking in the aura. And these experiences don’t need to be expensive showstoppers. Holiday shopping that feels fun instead of a hassle will re-engage customers and keep them coming back.

■ Build awareness around measures that minimize shipping. Retailers need to protect their fast-eroding margins as free shipping becomes a cost of doing business for ecommerce during the holidays. Encouraging shoppers to buy online and pick up in-store not only vaporizes shipping costs but can even generate incremental in-store shopping. Building awareness through email and other digital marketing campaigns in the first three quarters of the year can pay dividends in the all-important final quarter.

EMARKETER INTERVIEWS

Katherine CullenDirector, Retail and Consumer Insights

National Retail Federation Interviewed January 22, 2019

Brian FieldSenior Director, Retail Consulting

ShopperTrak Interviewed January 18, 2019

Satish JindelPresident

ShipMatrix Interviewed January 29, 2019

Ed KennedySenior Director, Commerce

Episerver Interviewed January 22, 2019

Michael KleinDirector, Industry Strategy and Marketing, Retail, Travel and CPG

Adobe

Interviewed January 23, 2019

US 2018 HOLIDAY SEASON REVIEW AND 2019 PREVIEW ©2019 EMARKETER INC. ALL RIGHTS RESERVED 13

READ NEXT

The Future of Retail 2019: Top 10 Trends that Will Shape Retail in the Year Ahead

SOURCES

Adobe

Bizrate Insights

Comscore

Coresight Research

Narvar

National Retail Federation (NRF)

Prosper Insights & Analytics

Rakuten Intelligence

RetailMeNot

Salesforce

Toluna

EDITORIAL AND PRODUCTION CONTRIBUTORS

Anam Baig Senior Editor Joanne DiCamillo Senior Production Artist Katie Hamblin Chart Editorial ManagerDana Hill Director of ProductionErika Huber Copy EditorAnn Marie Kerwin Executive Editor, Content StrategyStephanie Meyer Senior Production ArtistHeather Price Managing Editor, ContentMagenta Ranero Senior Chart EditorAmanda Silvestri Senior Copy Editor

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