In a rollercoaster year defined by a global pandemic that sent shoppers flocking to the web due to temporary store closures and lingering discomfort with public spaces, U.S. consumers are poised to spend an unprecedented $198.73 billion with online retailers this holiday season, Digital Commerce 360 projects. That would be a remarkable 43.3% year-over-year jump from $138.65 billion for the same November-December period in 2019.
Digital Commerce 360’s forecasted growth for online holiday sales in 2020 would be more than three times the 2019 season’s more moderate jump when digital revenue rose 13.6% year over year from $122.00 billion in 2018. However, it’s important to note that last year’s performance for the overall holiday period was considered “lackluster,” missing projections from a number of large research firms.
Although there was record-breaking online spending in 2019 during the five-day period from Thanksgiving through Cyber Monday (dubbed Cyber 5), that wasn’t enough to fuel higher growth since many of the biggest retailers experienced sluggish sales for the remainder of the season. A calendar quirk also contributed to a temperate showing: Thanksgiving fell very late in November, leaving six fewer shopping days between Thanksgiving and Christmas, which shortened the window of time consumers could buy gifts with guaranteed Christmas delivery and prompted many to turn to physical stores to finish seasonal purchases.
The 2020 season will be set against a dramatically different backdrop, as COVID-19 has caused shoppers to limit store visits and instead opt for ordering items online. In a momentous period that will likely build on massive gains made in ecommerce this year, more than a quarter of seasonal spending will occur on the web—advancing online penetration to a level that wouldn’t normally have been reached for another four years, Digital Commerce 360 estimates. If our forecast holds true, 26.1% of purchases will take place online for the holidays, which is an enormous jump from 19.2% ecommerce penetration for the 2019 season.
The coronavirus-related shifts in buying behavior also will translate into an additional $38.94 billion in digital holiday revenue for November-December. If online holiday sales had accelerated at a more typical seasonal growth rate—a median 15.2% over the last five years—revenue wouldn’t have reached 2020-projected levels until 2022. A normal, pandemic-free holiday in 2020 likely would have resulted in consumers spending $159.78 billion in on the web.
Digital Commerce 360 also expects retail sales through all channels to reach $761.30 billion for the season. That would be up 5.3% year over year from $722.98 billion in 2019 with shoppers having more disposable income for physical goods since restaurant dining and travel has been restricted this year. Ecommerce will account for all growth and then some, as in-store sales will decline 3.7% from November-December 2019.
Here are five reasons why the country is in for such an extraordinary couple of months in online retail:
1.) Year-to-date numbers are record-breaking.
The current state of ecommerce bodes well for the impending holiday season.
In the first six months of 2020, consumers spent $347.26 billion online, up 30.1% from $266.84 billion for the same period in the prior year, according to U.S. Department of Commerce data. That’s the second-highest growth rate for the first half of the year since at least 2000—the first full year for which the agency published ecommerce figures. The 30.1% uptick in online sales registered so far in 2020 is also nearly two-and-a-half times higher than the 12.8% year-over-year increase for the first six months of 2019.
Digital revenue growth in Q1 was a run-of-the-mill 14.6%, but the January-March period captured just two-and-a-half weeks’ worth of retail spending after President Donald Trump declared a state of national emergency on March 13.
After that, stay-at-home orders and store closures caused online shopping to skyrocket as consumers shifted their dollars to the web, and digital sales soared 44.4% year over year for the April-June quarter. Q2 2020 marked the highest year-over-year growth for any recorded second quarter and the second-highest rate of any quarter or year overall going back to when the Commerce Department first started breaking out ecommerce data in Q4 1999. Q2 2020’s striking performance also was more than triple the online sales growth registered in Q2 2019 as well as Q1 2020.
The agency releases ecommerce data on a quarterly basis, and Q3 figures will not be published until Nov. 19. But growth through the first nine months of the year will be even higher than the first half, as retailers, technology vendors and industry experts have largely reported notably elevated levels of digital revenue in the third quarter.
Data from Adobe Analytics, the data insights arm of software company Adobe Inc., shows U.S. ecommerce sales received a 46.6% year-over-year boost in Q3. And through the first nine months of 2020, digital revenue increased a hefty 44.5%, Adobe says. The firm’s data is based on transactions from more than 1 trillion anonymous online visits to retail sites, including 80 of the top 100 retailers in the Digital Commerce 360 Top 1000, and covers more than 100 million SKUs.
Digital Commerce 360 estimates online sales for the first three quarters in 2020 jumped a slightly more conservative 37.1% over the same timeframe in the prior year. That still would be the highest-ever recorded growth rate for the nine-month period and more than two-and-a-half times faster than the 14.5% registered in 2019, according to an analysis of Commerce Department data.
Given how well the first three quarters have done, 2020 is mathematically gearing up for a giant Q4. Historically, the fourth quarter represents the highest share of annual online sales of any three-month period with a five-year median of 31.4%.
The recent momentum in both ecommerce and overall retail will “propel the economy in the months ahead,” says Jack Kleinhenz, chief economist at the National Retail Federation—especially if there’s an additional federal stimulus package to help fuel spending during the holiday season.
“Strong growth in retail sales during the last few months points to the resiliency of consumers even in this disruptive pandemic environment,” he says. “The U.S. economic recovery has progressed more quickly than generally expected.”
2.) Consumers plan to buy more gifts online this year.
Shoppers will rely heavily on online merchants for the holidays. More than three-quarters of consumers—77%—plan to complete half or more of their gift buying on the web this season, according to a Digital Commerce 360 and Bizrate Insights survey of 1,000 shoppers in September. That’s up significantly from 62% in 2019.
That sizable shift can largely be attributed to shoppers’ anxiety about being in crowded, shared spaces as the coronavirus has continued to spread unabated and the number of cases is growing. More than a quarter of consumers (26%) say they will not buy many products in physical stores this holiday season, according to the survey. And even when shoppers do brave a store visit, they’re more likely to initiate orders online and pick up items using omnichannel programs than in previous years. 20% of survey respondents say they’ll purchase on the web and use retailers’ drive-up or curbside pickup options for contactless transactions, which is up from 16% who planned to use those omnichannel services in 2019.
Online sales have always represented the highest share of total retail spending in Q4 versus other quarters, and digital penetration rises even more during the November-December period as shoppers take advantage of online deal days like Cyber Monday. As each year passes, ecommerce’s share of all spending grows. But even at its peak during the 2019 holidays, still roughly $4 in every $5 was spent in stores. Yet this year, considerable change is afoot for long-held, in-store spending patterns during the holidays—one that will advance ecommerce penetration beyond what’s typical in one year’s time.
3.) Some big retailers will close stores on Thanksgiving.
In recent years, large retail chains have typically kept stores open on Thanksgiving Day to give consumers a head start on Black Friday deals. But a number of big names have decided to remain closed on the holiday this year to prevent shoppers from swarming into crowded aisles and standing in long lines amid a health crisis or ensure compliance with capacity regulations.
Walmart Inc. (No. 3 in the Top 1000), Target Corp. (No. 12), Best Buy Co. Inc. (No. 10), The Home Depot Inc. (No. 5), Kohl’s Corp. (No. 21), Dick’s Sporting Goods (No. 43), Ulta Beauty (No. 67) and others have announced their doors will be closed on Thanksgiving.
Instead, retailers are emphasizing their plans to offer earlier and longer sales throughout the holiday shopping rush—often extending in-store promotions to the web. Home Depot is one such merchant. The home improvement chain says its Black Friday prices will be available throughout the entire season, both in-store and online.
Ecommerce will likely be the beneficiary of these closed stores, as shoppers will head online seeking deals. And as retailer messaging continues to reiterate online access to sales throughout the next couple of months, consumers will be swayed into looking for gifts from the safety of their own homes.
4.) Shipping carriers expect peak season volume to soar.
Parcel delivery services have already struggled to keep up with demand for a large chunk of the year as the influx of ecommerce orders during the pandemic has overwhelmed capacity. Retailers, technology vendors and shipping carriers have reported holiday-level volume since the spring and still anticipate a ramping up of ecommerce packages for November-December.
“The spread of COVID-19 in the U.S. has triggered such an increase in ecommerce since March that shipping volumes have consistently been at Christmas peak or Cyber Monday levels every day,” FedEx’s executive vice president and chief marketing and communications officer Brie Carere told CNN. “Now we’re headed into a peak on top of a peak.”
Delivery company DHL Express expects the pandemic-related ecommerce surge to intensify during the traditional pre-Christmas shopping frenzy, with shipment quantities projected to be more than 50% higher for its network than the 2019 holiday season. That’s significantly higher than the 35% year-over-year ecommerce volume increase DHL has seen so far in 2020.
Last-mile technology vendor Convey anticipates the 2020 holiday shipment volume for its 130 retail clients—which include Home Depot, Neiman Marcus (No. 40) and Eddie Bauer LLC (No. 137)—to increase at least 30% from last year. By comparison, shipment volume in November-December 2019 jumped by a moderate 14.2% year over year. Convey’s data is based on tens of millions of packages shipped from more than 500,000 U.S. locations across the company’s client base but excludes shipments from Amazon.com Inc. (No. 1).
5.) Amazon Prime Day didn’t run away with holiday gifting.
With Amazon’s decision to postpone its popular annual promotional event from July to mid-October this year due to the pandemic, many industry experts speculated that the 48-hour Prime Day sale would prompt consumers to start checking off their holiday lists early. That would have helped alleviate the burden on shipping carriers during peak weeks, pulled spending typically allocated for the November-December season into October and cut into the holiday period’s growth potential.
But it doesn’t seem as though that happened on a large scale.
More than a third of shoppers (38%) did not do any holiday shopping during Prime Day, according to a Digital Commerce 360 survey of 530 consumers in October. And another 32% said less than a quarter of their purchases during the sales event were gifts.
Additionally, 29% of consumers who shopped on Prime Day didn’t make any purchases or made fewer than the prior year because they expected to find better deals on Black Friday or Cyber Monday, according to the survey.
Digital Commerce 360 estimates Amazon’s sales on Prime Day hit $10.40 billion globally over the two-day period spanning Oct. 13-14, up an impressive 45.2% from $7.16 billion during the 48-hour event in July 2019. But the sale may not have been as successful as prior years: In 2017-2019, Amazon press releases reporting results have boasted that Prime Day sales surpassed the previous year’s Black Friday or Cyber Monday revenue. This year, Amazon didn’t mention hitting the same growth milestones.
But the ecommerce giant still expects to increase net sales by 28%-38% year over year in Q4, up from 20.8% growth for the same period in 2019, and those gains will likely be concentrated in November-December. And given the outsized impact Amazon has on the overall market, this will have a ripple effect on holiday growth.
While holiday demand may have spread out a bit earlier in Q4, consumers still seem focused on November-December shopping.
Although Digital Commerce 360 is very optimistic about ecommerce sales during the holiday season, the performance of the market hinges on ever-changing factors that may negatively or positively impact consumers’ willingness to spend online—this year more than ever. Election results, a resurgence of the virus that may force another round of store closures, unemployment and other curve balls can still reverse or accelerate trend lines.
Forecasting 2020 holiday sales is analogous to assembling a jigsaw puzzle without all of the pieces, Kleinhenz says.
“Completing a puzzle is highly probable given patience, having all the pieces and having the picture on the box to guide assembly,” he says. “But it’s not the same when attempting to fit pieces of the economy together in today’s environment. Many of the pieces are missing.”
For holiday forecasting, Digital Commerce 360 analyzed historical sales and growth for the U.S. ecommerce and total retail markets as well as the trajectory of online penetration, identifying trends in consumer spending habits during peak shopping periods and gleaning insights from retail shifts during the pandemic. The research team also examined the year-to-date performance of hundreds of public retailers, dozens of merchants’ Q4/holiday season or year-end projections, sales trends by merchandise category, consumer and retailer surveys, traffic patterns to retail websites, shipment volume data, economic indicators such as U.S. consumer sentiment and more.
Percentage changes may not align exactly with dollar figures due to rounding.