The Significance of Thanksgiving in the U.S Retail Economy
Thanksgiving is a crucial marker of the (un)official start of the holiday shopping season in the United States. Traditionally, many adults and students have the day after Thanksgiving off from work and are free to start their holiday shopping. In the past, this meant planning a trip to the local mall or store, and now is a combination of online shopping and in-store pickups.
Why the time between Thanksgiving and Christmas matters
The time between Thanksgiving and Christmas is incredibly important to US retailers because retailers often operate at a loss—or close to it—all year with the anticipation that the holiday season will lead to significantly more sales that gets them “into the black” for the year. This makes preparing for the holiday season one of the most important activities retailers can and should prepare for throughout the year. Both retail stores and online sites must be ready for the deluge of customers with the products they are looking for and deals that are compelling enough to convince those shoppers to open their wallets without giving away too much profit.
Retail benefits of a shorter selling season
One benefit of a shorter selling season, like 2019 when Thanksgiving was at the end of November, is consistent momentum. Because there is 1 less week in the shopping season, consumers tend to stay in the holiday shopping mindset, somewhat out of necessity, which means more steady sales throughout the season until it completely stops just before Christmas.
Another benefit is simply getting through it faster. Because so much is riding on a peak holiday season for many retailers, it means longer than typical hours and can be exhausting. Those long days don’t go away in a longer season, there are just more of them.
A final benefit is more time to prepare. The work seems to never be done and everyone can use those few extra days to put the finishing touches on processes or campaigns.
Retail pitfalls of a shorter selling season
Pitfalls of a shorter selling season include operational execution and fewer days available to ‘make up’ any sales that didn’t come in as expected.
Operations execution in a short season
A short season means that there are fewer days to sell all of the merchandise or services that needs to be sold. For physical goods, this means stores/retailers need to be ready to handle more volume than a typical day, or even a typical sale season. This includes having full inventory on-hand, more frequent inventory replenishment and the ability to checkout more customers. Online stores may need to ramp up their server capabilities to handle the increased traffic, but also must be able to pack and ship the orders that are placed. Each year that passes results in higher and higher expectations of immediate delivery of items ordered online. This can be an unattainable bar during the holiday season simply based on volume increasing exponentially and needing to move through the supply chain to get to a consumers doorstep. This can become particularly challenged in the last few days of the holiday when last minute orders are still coming in and the expectation is that they will arrive by Christmas Eve. Fedex and UPS felt the brunt of this volume back in 2016; they couldn’t keep up so packages were not delivered in time for the holidays.
Fewer days means fewer opportunities
When the season is flying and retail workers are just trying to survive until its over, fewer days seems like a great benefit. But, if holiday sales start out softer than anticipated, then its time to play catchup and implement plan B or C to get more sales booked. A shorter season means fewer days to actually execute on additional promotions, which could make or break the financials for the year.
How to forecast for a shorter selling season
To set the appropriate forecast for a shorter selling season, gather the following components of the sales forecast:
- The natural increase in sales that the NRF or others are predicting for the entire season YoY, if applicable
- Recent company sales trends, have they been up or down YoY
- If you are an online retailer, expected shipping cut-off dates
- How many fewer days are in the selling season than the previous year
- Last year’s daily sales for the holiday season
- Any other trends that may be occurring that are large enough to impact a sales forecast
The easiest way to put together a forecast is to determine the YoY change in the season’s sales based on the factors above. For example, if sales have been +20% all year, odds are, they will be +20% for the holiday season. Layer on that fact that there may be predictions from the NRF or others, such as an overall growth or decrease in sales.
Let’s walk through an example.
Company X has been having a great year and sales have consistently been +25% YoY. Last holiday season, Company X generated $800,000 in sales over the 30-day promotion period. They expect to continue their success and see a 25% increase in holiday sales, so their sales forecast this year is for $1,000,000. If there were the same number of days in this year’s promotion period, they could just apply a 25% increase to each days’ sales over last year and the forecast would be done. However, this year there are 23 days in the promotion period.
The $1,000,000 in sales must then be spread across 23 days instead of 30 to arrive at a daily forecast. This means each actual day is going to be much higher than 25% because more sales will need to occur each day to achieve the 25% seasonal growth. To simplify even further, let’s assume that consumers shop equally each day of the promotion. The table below shows the actual dollar sales each day based on either a 23 day period or 30 day period to get to the same result.
|Day||23-day period Daily Revenue||30-day period|
How to forecast for a longer selling season
A longer selling season will go through a similar exercise as above. It depends how much longer the season is. In the case of the holiday season, 2020 will have 2 extra days between Thanksgiving and Christmas than it did in 2019.
Sticking with Company X from the example above, if sales were going to be forecasted as flat YoY in 2020, then that $1,000,000 would be spread across 25 days instead of 23.
Not All Promotions are equal
The Q4 holiday season is unlike others. Consumers tend to trend in the same way and it is the time of year that the most people are doing the most shopping. Because of the cultural norms to both give gifts and wait to make large purchases for this period, and because the season is anchored by two key national holidays, it is more predictable as to how consumers will respond.
The same methodology of shortening or increasing a promotion length during other times of the year that are specific to your business may not be the same. The general principles apply, but consumers may not be as apt to act exactly the same way this year as last year for a different sale period.
Always remember that forecasting is both art and science.
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