The market performance numbers surrounding the holiday fulfillment period that spanned November and December of 2016 are in and the headline takeaways are twofold. The first is that U.S. retail shoppers were very optimistic in spending and very shrewd in their shopping habits. Second, the tide towards online and Omni-channel customer fulfillment is once again profound, and implications are even more impactful and inescapable for some traditional retailers. fba_sized

A More Optimistic Retail Consumer in the Final Quarter

The National Retail Federation (NRF) released its final tally of holiday focused retail sales in the November thru December time-period, declaring a 4 percent increase over the previous period in 2015.  According to the NRF, holiday retail sales, not including autos, gasoline, and restaurants, amounted to $658.3 billion, exceeding the organization’s prior forecast of $655.8 billion reflecting a 3.6 percent increase. U.S. Commerce Department data similarly reflected an overall 4 percent increase in retail sales for the three months ending in December. And a 3.6 percent increase for all of 2016. On the plus side, online retail sales increased 12.6 percent while retail sales at health and personal care retailers increased 6.7 percent. Retail sales at department stores decreased significantly at a 7 percent rate, while sales at clothing and accessories and electronics and appliances retailers decreased 2.5 percent and 2.3 percent respectively.

Market quantitative analysis firm comScore reported final 2016 holiday sales originating from desktop computers climbed 12 percent from the year-earlier period to reach $63.1 billion. While the firm’s quantification of mobile-based online sales is still in-process, the latest update based on initial mobile data indicates that online holiday sales will likely come within comScore’s original forecast range of a 16-19 percent increase overall. Further reported was that for the seventh consecutive year, Cyber Monday (November 28), and November 29, the day after ranked as the busiest online shopping days with $2.7 billion and $2.2 billion in daily online spending. In total, there were 10 $1 billion plus shopping days in the 2016 holiday period based on desktop sales. When the mobile-based numbers are finally tallied, the numbers will be even larger.

Such activity levels are a testament to the responsiveness of B2C and B2B-to-B2C supply chain customer fulfillment teams. And then there is the elephant in the room, the continued dominance of the Amazon online buying platform. Preliminary data would indicate another stellar year of Amazon performance in many online sales and customer fulfillment dimensions.

Automobile and truck sales further contributed to holiday spending as U.S. consumers took advantage of rather attractive promotional discounts offered by automakers.

More Compelling Impacts for Brick and Mortar

As we have noted in prior Supply Chain Matters postings, the compelling impacts surrounding 2016 online shopping trends became ever more compelling for traditional department stores and brick and mortar retailers. Macy’s, Kohls, Sears, JC Penny and Target, among others, have each announced declining physical retail store revenues, with many indicating additional store closings. Regarding Target, Business Network CNBC host commentator Jim Cramer observed that while that retailer’s online sales grew a healthy 40 percent during the holiday period, it most likely cannibalized physical retail store sales which declined 3 percent in this same period.  Cramer characterizes Target’s performance as the best indicator of the existing fundamental problem of Omni-channel retail and the consequent destruction of prior retail business strategy models predicated on physical foot traffic. We concur.

Wal-Mart itself has announced further organizational restructuring and a headcount reduction involving corporate level staffing to add additional leadership focus to the global retailer’s online growth strategies. Wal-Mart’s strategy direction is now one of predominate online with physical stores serving as an adjunct supporting strategy for pickup and pay or physical shopping needs.

As noted in earlier commentary, the physical store is now the virtual store, merchandising is now about intimate knowledge of customer needs and buying tendencies, and inventory management that is anchored in more sophisticated item-level planning and pooling algorithms.

From the supply chain customer fulfillment lens, today’s online world demands analytics-driven planning, agile marketing, and multi-channel customer fulfillment capabilities, supported by advanced inventory management with flexible and adaptable logistics.

The industry implications and trends are compelling as well as inescapable.

Bob Ferrari

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