Daniel Calano, Prospectus, LLC

‘Tis the season, and shoppers have just endured Black Friday, the balance of Thanksgiving weekend, and should spend aggressively right up to Christmas Day and beyond. With employment up, a little bit of inflation, a modest (2.8%) amount of wage growth, things are looking pretty good. Compared to last year’s “Black Friday,” which was somewhat disappointing, people are stepping out, or staying in, and spending.

The news is full of inconsistent and incomplete data, but it appears that Thanksgiving buyers spent over three billion dollars during this past weekend, up 1.3% from last year. Overall, the prediction is 4% growth in total spending for 2016. Despite the inexact numbers, reports are consistent that online spending has surged, reaching approximately 50% of all spending for the holiday period. From a real estate perspective, this is the important take away. In an article I wrote a year ago, I found that online sales had a record increase of 15% year over year in 2015. It’s the same increase this year over last year. While not a perfect correlation, this is close to a zero sum game. As online sales increase, brick and mortar sales decrease, with the exception that increased sales overall can fuel both.

Deloitte Consulting produced an excellent marketing report this fall regarding expectations for retail sales during 2016. (Deloitte 2016 Holiday Survey) It was essentially a survey based economic forecast, since the numbers were not fully in yet. Consistent with what we now know, they accurately forecasted a strong holiday season for U.S. retailers, fueled by improved labor market and modest increase in disposable income, with total holiday sales expected to increase 3.6-4.0% increase from November through January. As part of that increase, Deloitte forecasted a 17-19% increase in e-commerce sales reaching potentially one hundred billion during that period. Their thinking was backed up by asking respondents whether their household financial situation was, a lot better, the same or a lot worse. The “ a lot better” group had been steadily growing since the recession, while the “ a lot worse” group had been declining, with a crossover point in 2013. Parallel to growth in their positive expectations, 74% of the respondents intended to spend more in 2016, up from the recession period at 41%. Looks to me like a pretty solid picture.

Deloitte also correctly predicted record-breaking web traffic in retail sales this year. They found half of all consumers anticipated holiday shopping online, up from 45% last year, resulting in a 7% point lead over the most popular in-store destination at 43%. In previous years, shoppers always planned to spend more in stores, so there has been a significant change in both expectations and behavior. This does not bode well for brick and mortar stores. This is obvious to anyone who has shopped with Amazon Prime. However, recognizing this, stores and malls have been improving their facilities and adding entertainment, amenities, and new fun experiences to shopping. Most importantly, they’re blending store buying with online channels, hoping to make shopping a more seamless endeavor between internet and store visits, rather than an either-or fight to the death. As an example of that, survey respondents indicated that they are transcending single experience shopping by combining all tools that they have at hand: 66% of respondents said they would first look at items online, then go a store to see the item, then make a purchase at the store (webrooming); 50% said they would first go the store to look for an item, then search online for the best price and purchase online (showrooming); 43% said they would by a product online and instead of having it shipped would go to the store to pick it up.

There are many other factors to consider in predicting where, how and how much people will spend. Most obvious is the consumer demographic, with Millennials car-less and trying to pay of education debts, and baby boomers typically shedding rather than accumulating possessions. Many other factors play a role including weather, store loyalty, return policies, delivery systems, data and credit card security issues, and so on. If you are a person who sees the glass half full, you see many and growing integrated options, novel shopping experiences, and improved efficiencies. If you are half-empty, you may see the situation as characterized by a troubled strip mall or department store with lesser ability to compete and catch up. In either case, we know the changes are coming fast, and early adaption is critical to success. This train has left the station.

Daniel Calano, CRE, is the managing partner and principal of Prospectus, LLC, Cambridge, Mass.