Second COVID Christmas better than first for retailers

With significant majorities of people vaccinated in Europe and the United States, and voters expressing firm sentiments of lockdown fatigue, governments were reluctant to impose severe new restrictions to movement and trade despite the arrival of new coronavirus variants.

Fewer restrictions meant that more people were walking around city centres, which was good news for retailers. Footfall levels in commercial areas were, on average, much higher than at the end of 2020, and should translate into higher sales volumes. In the US, the National Retail Federation estimated that holiday season sales would climb 11.5%. In Spain, Toledo was so crowded in early December that a local association started a campaign for the imposition of restrictions on the flow of tourists into the city.

Preliminary data released in some markets have confirmed such views. For instance, credit card provider Mastercard found that holiday season sales in the US were 8.5% higher in 2021 than in the year before.

However, uncertainties about end-of-the-year sales remained for retailers in several countries. Springboard, a research company, found out that the number of shoppers on UK high streets started to drop in the first half of December as the more contagious omicron variant of the virus spread around the country. The drop accelerated during the traditional post-Christmas sales season that start on December 26th, when the number of people that went out shopping was 32% lower than in 2019.

In Germany, some local governments in Bavaria and Saxony cancelled their traditional Christmas markets in a quest to stop the spread of the variant, in the kind of measure that has an impact well beyond the interruption of a cherished local tradition.

"When Christmas markets are closed, it creates all sorts of problems as the frequency of visits to urban centres fall. People go to the markets and also to the shops around them," said Nicole Bludau, a manager of Risk Services at Atradius in Germany.

In the Netherlands, stores were closed one week before Christmas leaving last minute shoppers caught worrying about late on-line purchases arriving on time for Christmas. If these examples were followed in many more countries, more consumers will have done their shopping online. In the US, according to Mastercard, online sales were 11% higher than in 2020, while in-store sales went up by 11%.

Retailers that rely on physical stores, and especially SMEs, may have suffered a significant hit as a result. Not only from a loss of sales worsening their balance sheets, but they will also have to bear the cost of maintaining stocks that have been replenished for what promised to be a bumper Christmas season.

On the other hand, more online sales could also exacerbate the supply chain problems that have affected the retail sector for most of the year. Delivery of products like electronics, the most sought-after toys and even certain fashion items were already taking longer than usual. In fact, analysts have spotted signs that many consumers have anticipated their Christmas shopping by taking advantage of promotions such as Black Friday, in November.

"With supply chain issues widely reported since the summer, people became aware that the delivery of goods purchased online may take longer, so consumers may go back to the shops to make sure they can make their Christmas purchases on time," noted Ruby Hartery, a senior underwriter at Atradius in the UK.

Logistics firms have had to hustle to put presents under the Christmas tree even when they were available for delivery. In November, FedEx estimated that it would deliver 100 million more packages between Black Friday and Christmas in the US than it did last year, which gives an idea of the brunt that the sector had to carry during the shopping season. In markets like the UK, the situation compounded by local factors that made the work of gift-givers even harder.

"In the UK, supply chain issues have been exacerbated by the effects of Brexit. There are large numbers of unfilled job vacancies across key professions such as lorry drivers and roles in the service sector. And an extra amount of red tape imposed on the entry of goods into the UK. It all means that stock levels are more challenging today than in previous times," said Owen Bassett, manager of Risk Services at Atradius in the UK.

All things combined, Atradius foresees a challenging environment for small retailers and those that have little online presence, which could be reflected in the expected spike in bankruptcies in 2022. On the bright side, however, there are few if any signs that consumers are unwilling to spend money.

The Mastercard survey in the US, which found an increase in spending not only compared to 2020, but also to 2019, go in line with previous forecasts by other analysts. A survey by Alix Partners, a consultancy, concluded that 88% of American consumers expected to spend more these holidays than in 2020. In Spain, the number was 62%, according to Deloitte.

Expectations like those were widespread in the developed world, even though in some markets consumers are starting to show a little bit of reluctance due to factors such as inflationary fears and the rise of inequality. In France, lenders Cofidis concluded that consumers expected to spend €70 less on gifts than during the first Covid Christmas.