‘The Amazon effect’ and 3 other things to watch for this holiday shopping season

The holiday shopping season has begun, like it or not.

Sixteen percent of shoppers have begun shopping for the holidays, according to the RetailMeNot Inc. 2016 Retailer Guide to Consumer Trends. Forty-six percent said they would begin before Nov. 1.

Last year, the weeks leading up to Christmas Day, a critical period for retailers and brands, was derailed by a number of factors, including warm temperatures. Here’s what will be having an impact this year:

See also: Retail trade groups expect strong holiday spending

Weather
The East Coast had the warmest weather in 120 years in 2015, said Paul Walsh, vice president of weather analytics at The Weather Co. Many retailers, like Macy’s Inc. M, -3.10%   and Burlington Stores Inc. BURL, +0.06%  , were hit by the unseasonable temperatures. Others, like Lowe’s Cos. LOW, +0.79%   and Home Depot Inc. HD, +0.55%   said it boosted outdoor sales.

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This year, there’s no El Niño and both November and December are forecast to be colder-than-usual.

“There’s probably a cohort of people who will buy a winter coat this year because they didn’t buy one last year,” Walsh said.

See also: Distracted consumers could pause holiday shopping around election, but they’ll come back

AccuWeather

Accuweather’s map forecasts “frequent storms” in the Northeast this winter.

Walsh thinks we’ll have a mild October, which is playing out so far. The first week of the month was the “fourth warmest start to October in 25-plus years nationwide,” Cowen & Company wrote in a note published Monday. Traffic for the week was down 6.5% year-over-year, analysts said, with Hurricane Matthew likely affecting traffic in the South.

In a separate, earlier note Cowen said companies including Under Armour Inc. UA, +1.18%  , Burlington Stores, and Dick’s Sporting Goods Inc. DKS, +1.72%   are “well-positioned for a cold weather reversion.” Analysts there also favor American Eagle Outfitters Inc. AEO, -0.66%   for denim, and both Macy’s and Nordstrom Inc. JWN, +0.56%   for easier comparisons.

“December is the month Weather Trends International Inc. believes is 90%-plus likely to be cold, which could drive full-margin cold weather apparel sales,” the Sept. 23 note said.

And with more weather information, shoppers can act quickly.

See also: Shoppers know more than sales associates – here’s how to fix that

“Weather forecasts are getting so good, people are leveraging weather data in ways they hadn’t before,” said The Weather Co.’s Walsh. “They can buy a coat days in advance of a cold snap or a snowstorm and have it delivered for free.”

Inventory
It’s one thing to have demand, another to have the merchandise. Weather changes, retail across platforms, and other conditions make inventory control critical.

See also: How free returns on online purchases are crippling retailers

“How can you make a promise to somebody unless you know what your inventory is?” said Oliver Guy, retail industry director for Software AG, a process, data and real-time analytics solution vendor. “There’s a focus on data and connectivity across the enterprise.”

The fear of being out of stock is so high, according to Brandon Levey, chief executive of Stitch Labs, retailers will often buy more than they need.

“Big brands don’t know how to think about e-commerce and brick-and-mortar symbiotically,” said Levey. “In order to have an effective strategy, you have to think about how these things work together, not in silos.”

Retailers aren’t taking chances, passing the stress along to others.

“Retailers are managing inventory with more caution, which lowers markdowns but pressures vendors to hold more inventory,” said Cowen in a note published Wednesday. As a result, vendors could face problems with cash flow generation and rely on direct-to-consumer channels.

See also: Pokémon Go inspires surge in toys with AI and augmented reality features

‘The Amazon effect’
The National Retail Federation forecasts a 7% to 10% increase in nonstore sales, which includes e-commerce. That could total as much as $117 billion. Others are forecasting an even bigger jump. A hefty chunk of that online shopping will go to Amazon.com Inc. AMZN, -0.49%  

For the year so far, Amazon has captured 35.5% of market share for U.S. online shoppers, according to Slice Intelligence data. Prime membership has reached 60 million, said a recent Morgan Stanley note.

Many retailers are now offering free delivery, a perk that online shoppers appreciate. And everyone loves a good deal, with 83% of those surveyed by RetailMeNot saying they would use up to six channels, including deals and savings apps, to find the best ones.

But competing with Amazon based on price alone is a risky approach.

See also: Wal-Mart to take on Amazon with upgrades to its bricks-and-mortar stores

“The retail winners are trying to avoid playing a head-to-head pricing game with Amazon, which basically means an apples-to-apples comparison, which is good for customers but bad for retailers,” said Jenn Markey, VP of marketing at 360pi, a firm that focuses on pricing and product strategy.

Markey suggests, for example, a “curated assortment” where retailers group items that apply for a room or occasion. For the shopper that’s preparing for holiday guests, that could mean buying fresh bedding and towels together.

“As long as it’s a reasonable price, they recognize the value of their own time and of what the end-product will look like,” said Markey.

See also: Amazon to add to grocery business with convenience stores, curbside pickup

See also: Another firm raises Amazon’s price target to $1,000

Mobile
Shopping on mobile devices will increase by 25%, according to PwC’s 2016 Holiday Outlook. Sixty-two percent of shoppers are using mobile devices to check out products and track purchases. More than half (56%) are using the devices to keep an eye on deals. And 28% are paying using their devices.

“There’s no question that retailers have transformed their websites to be mobile-enabled and to reduce friction in the purchase journey,” said Steve Barr, PwC’s U.S. retail and consumer leader.

More than just providing another way for shoppers to buy their holiday gifts, mobile devices can drive traffic to stores, according to Christian Gaiser, chief executive of Retale, a location-based circulars and coupon app. He’s seen a shift in marketing budget to mobile for this purpose.

“It’s an uphill battle to compete with Amazon on all fronts,” he said. “The recommendations, advice, and in-store experience is important.”

See also: Holiday hiring shows the clear shift toward e-commerce

In 2015, there were six days where mobile traffic surpassed desktop traffic, a first, said the RetailMeNot research. But there’s one caveat to all this mobile activity.

“While we expect to see this trend continue (and increase), it should be noted that in-store purchases saw an average order value of $80 compared to only $70 on smartphones,” the guide said, quoting an earlier National Retail Federation report.

Under Armour shares are down 23.4% for the past year. Dick’s shares are up 20.5% for the last 12 months. Macy’s shares have fallen 28.8% over the last year. And Nordstrom shares are down nearly 20%.

The S&P 500 Index SPX, +0.30%   is up 7.1% for the past 12 months.

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Published at Fri, 14 Oct 2016 16:50:55 +0000