FROM THE DESK OF DEBORAH WEINSWIG

2021 Outlook: Looking Forward to a Healthier Retail Environment as the Year Progresses The new year offers us the opportunity to view things afresh, with the year ahead perceived by many as a blank page. Retailers, though, are still in the third month of the fourth retail quarter, which spans the new year transition—including 2020’s crucial holiday selling season, plus an additional opportunity for retailers to ring up sales from January store visits spurred by gift cards and returns. Below are several topics that we expect to influence retail in 2021. Store Closure Announcements: January is the time when retailers draft and finalize their plans for physical retail for the year ahead, which typically includes a spate of store closure announcements, as retailers match their store fleets with sales forecasts. We calculate that US retail sales of clothing and accessories decreased by 30% year over year from January through October, which is likely to lead to substantial store closure announcements and/or bankruptcy filings among retailers selling apparel and similar product categories. Moreover, many retailers likely hung on through the crucial holiday season in hopes that it would make up for a difficult year. The initial figures show a solid (but not spectacular) holiday season, with Mastercard reporting that total retail sales increased by 3.0% year over year during what it called the “75 Days of Christmas,” (i.e., October 11 to December 24)—including stellar 49.0% growth in online sales compared to 2019. Consumers started shopping early (hence the nontraditional definition of the holiday season) and clearly shopped online at a greater-than-expected rate. Many consumers also voted with their feet not to crowd stores on traditional peak shopping days, such as Black Friday. This tectonic shift in demand from offline to online will have major ramifications for retailers in 2021, as they adapt to accommodate this move to e-commerce. Nordstrom, for example, reported that the majority of its third-quarter sales (approximately 54%) were online, which has major implications for its store fleet. Acceleration in E-Commerce: During 2017–2019, US e-commerce penetration increased by an average of 1.25 percentage points each year. We estimate that the share of e-commerce jumped a full four points to 19.0% in 2020, which would not have occurred until around 2023 based on the prior trajectory. This acceleration will affect retailers’ decisions on store fleet size and also increase their rate of technology adoption to handle the greater share of online sales and keep pace with technology-fueled online retailers. US Stimulus Checks: US President Trump signed off on the coronavirus relief package on December 27, which will see many citizens receive a $600 stimulus check, with debates regarding increasing the amount to $2,000 yet to be concluded at the time of this letter’s writing. Regardless of the ultimate figure, the stimulus package will contribute to keeping many individuals financially afloat and offers an injection of cash into the economy. Depending on the rate of economic recovery, additional rounds of stimulus could be needed. Improving Consumer Sentiment: We are optimistic that the combination of a new round of economic stimulus and the anticipation of availability of vaccines around the globe will lead to loosened restrictions and a more optimistic consumer outlook in the US, particularly in the second half of 2021. Therein lies something of a challenge for retail: The previous near-complete evaporation of consumer spending on entertainment and leisure freed up funds for the purchase of goods—yet we all look forward to a return to normalized spending and behavior patterns. A Heathier Retail Industry: Following a continued shakeout among retailers, the future retail landscape will consist of retailers with a solid financial footing, plus those that have shown resilience. Although consumer choice will likely be reduced due to the disappearance of many regional and mom-and-pop stores that provided local flavor, we are optimistic that a healthier retail industry will flourish again and that new shops will be attracted to emerge and enliven the industry. Happy New Year! We at Coresight Research wish you a healthy and prosperous 2021.