If the typical holiday shopping season was not already stressful enough, navigating the season during the COVID-19 pandemic is sure to heighten anxiety levels for retailers and consumers alike in 2020. It has already been a devastating year, both from a humanitarian perspective and for the global economy. But US consumers have found a way to spend money amid the chaos and retail has been a key beneficiary of a widespread shift in spending from services to goods.

Total retail sales (excluding food services) through October were 7.7% above the February pre-pandemic level, in stark contrast to the 5.8% deficit for nominal personal consumption expenditures on services over the same period. Even within retail categories, the chasm between "winners" and "losers" is striking. On one end of the spectrum, sales at nonstore retailers were up 28% from February in October; at the other extreme, sales at clothing & accessory stores were down 13%. These sharp contrasts are borne out of consumer apprehension to engage in socially dense spending activities as well as the containment measures meant to curtail such activities. For retailers, this holiday season is either going to be one to remember or one to forget, depending on how the pandemic has impacted sales in that industry.

Holiday sales promotions have been rolling out earlier and earlier each year, diminishing the importance of the traditional Black Friday/Cyber Monday sales events and pulling sales forward as early as September. This year, because of the pandemic, Amazon moved its Prime Day sales event from July to mid-October and it served as an unofficial kick-off to the holiday shopping season. We forecast that online holiday sales will grow 28.1% over last year, compared to the 16.1% rate in 2019 which was the strongest growth since 2004. The expected growth this year would bump the online share of total holiday retail sales roughly four percentage points from 21% to 25%—a rate of increase three times the average since 2015. Online sales were already destined for continued growth but the pandemic has accelerated the market penetration rate about three years ahead of schedule.

Consumer psyche remains a key question mark this holiday season as the pandemic has impacted everyone differently. The spiking number of cases ahead of the holidays and associated containment measures will deter some in-person shopping, as will uncertainty about the slowing economic recovery and questions about whether additional fiscal stimulus is likely. On the plus side, recent news about successful vaccine trials provides a light at the end of tunnel that could ignite a sense of optimism. Moreover, home prices and equity markets are shooting higher and providing a positive wealth effect for asset owners. This should provide enough optimism to make this a successful holiday season for retail sales.

Posted 30 November 2020 by James Bohnaker, Director, Economics, IHS Markit