Retail Holiday Newsletter
En Bref
- Early data supports our outlook for positive holiday sales growth, largely bolstered by grocery sales and the continued acceleration of online shopping.
- Signs also point to another strong season for Amazon, though it will likely see increased competitive pressure from traditional retailers growing their buy online, pick up in store (BOPIS) services and curbside channels.
- In this issue, we look at how Amazon—like many retailers—faltered on customer expectations early in the pandemic. We also explore how the online giant has been investing to bounce back and win this season, and how competing retailers can capitalize on emerging opportunities.
Checking it twice: Our holiday sales forecast
A few weeks into the holiday season, the latest shopper data supports Bain’s projection that November and December retail sales will grow at least 2% year over year, despite uncertainty spurred by the pandemic.
Tough market conditions remain a hurdle
As Covid-19 cases hit new highs in November, many states are reinstating restrictions. This may reverse October’s uptick in store traffic, which increased 7% from September, according to Advan research. And consumers are concerned: In a Bain survey conducted with Dynata in October, 47% of US consumers said they still worry about Covid-19’s negative impact on their financial health, and 33% reported they still have not done any in-store shopping since the start of the pandemic, aside from trips to the grocery store.
With more consumers staying home and shopping online, the massive shift to e-commerce continues to put pressure on retail supply chains, many of which are already running at or near peak capacity. Salesforce estimates that, globally, 700 million packages may not reach shoppers on time.
These forces have encouraged consumers to start their holiday shopping earlier than usual. Strong sales in October, bolstered by Prime Day and other sales events, seem to have pulled forward a portion of holiday spending, possibly reducing the spike we would normally see in November and December.
But the season sees a stronger-than-anticipated start
Although rumors of a dreaded “retail apocalypse” keep swirling, actual sales defy the clichéd story line. Total US retail sales grew 13% year over year in September and 11% year over year in October. Yet growth varies wildly across sectors, competitors and channels, and market share is shifting rapidly among winners and losers—with e-commerce being a clear winner.
What’s more, shoppers are primed to keep spending: Consumer sentiment hit its highest levels since March, and disposable income increased in September compared with last year. Consumer intent to spend is also growing, down only slightly from last year, according to Bain’s Consumer Health Index (CHI).
And there’s more good news: Retailers’ shelves are filling to meet demand. Port volumes—a leading indicator for inventory levels—hit record highs in September, with a 12.5% year-over-year increase, and in October, with an estimated 6.5% year-over-year increase, compensating for undersupply earlier in the year.
Unwrapping Amazon’s Covid-19 performance
Amazon has long proven the “winner-takes-most” outcome in e-commerce. The online titan has established itself as the predominant starting point for e-commerce search; it leads the industry in conversion rates and has created a loyal following with more than 120 million US Prime memberships. We estimate Amazon captured more than a 40% share of US e-commerce in 2019.
When it comes to holiday growth, Amazon typically leads the pack. The giant usually gains 2 to 3 points of US e-commerce share during the second half of the year, largely attributable to Prime Day momentum in July and robust holiday sales.
But in a year that’s been anything but ordinary, can Amazon deliver its historical gains? The retailer will undoubtedly have a record-breaking holiday given anticipated e-commerce growth. However, with increasing competition from omnichannel retailers, Amazon will need to turn around its recent e-commerce market share losses if it wishes to emerge the holiday victor.
A struggle to keep pace with explosive online growth
Amazon started 2020 in stride. As thousands of stores closed in response to the pandemic, consumers shifted to e-commerce—and Amazon’s first and second quarter sales soared. The company reported global net sales of $89 billion in the second quarter, topping its 2019 holiday high, with its US retail gross merchandise value (GMV) growing approximately 47% year over year.
While Amazon’s growth was impressive, other retailers grew their online businesses even faster. According to Bain analysis, the e-commerce giant lost about 2.5 points of online share during the second quarter, though it reversed that trend by the end of the third quarter (see Figure 1).
Figure 1
Amazon’s share of the e-commerce market bounced back in the third quarter from a significant decline in the second quarter
What happened? While Amazon remained the undeniable winner in e-commerce, its lead over other online retailers narrowed as it faltered on critical aspects of its core value proposition—shipping speeds, product availability and price advantage.
In response, many consumers turned to their trusted in-store retailers, which had shifted brick-and-mortar resources to online operations. According to Bain analysis, by October, about 80% of the top 50 store-based US retailers were offering curbside pickup for online orders. These omnichannel retailers utilized their store networks for a quick and safe shopping experience, aiming to satisfy shoppers’ needs during a difficult time.
Fulfillment, availability and price pain points
Fast, free shipping (with a $119 annual Prime membership) has long been a major driver of Amazon’s customer satisfaction. But the peak of pandemic demand pushed Amazon’s logistics network beyond optimal utilization rates. The retailer responded by prioritizing the most critical orders, but that frustrated a lot of customers.
In partnership with Rakuten, we found that Amazon’s shipping speeds slowed by two days, on average, from March to May—and didn’t return to pre-pandemic levels until August (see Figure 2). While its delivery times still outpaced competitors, Amazon likely disappointed its shoppers, who expected (and paid for) “Prime speed.”
Figure 2
Early in the pandemic, Amazon’s shipping speeds slowed an average of two days
These shipping delays have had a lasting impact on customer sentiment. Across 74,000 social media posts related to Amazon’s shipping speeds, negative sentiment grew from March to May, when negative posts peaked at 49% of total mentions (see Figure 3). Despite improved shipping times this summer and fall, customer frustrations haven’t subsided. In October, 36% of posts were negative, compared with 15% on average across all of 2019.
Mass merchandisers saw similar trends in negative sentiment, suggesting Amazon may not be the only target of major e-commerce frustration. The race is on to see which retailers can satisfy shoppers with reliable, fast deliveries this holiday.
Figure 3
Negative social posts about Amazon’s shipping spiked with the onset of Covid-19 and remain high
Amazon will also need to improve its performance in product availability. While many retailers struggled to keep household essentials and other popular products on shelves early in the pandemic, Amazon’s troubles have been broad and persistent. According to research conducted in partnership with Edge by Ascential, out-of-stock rates remain well above 2019 averages in most categories except apparel—a sector that saw declining demand during the pandemic (see Figure 4). Amazon aspires to provide its customers with the world’s broadest selection, but high stock-out rates may be undermining consumers’ confidence that they can find what they need.
Figure 4
Amazon’s product availability has suffered in many categories, even after pandemic “panic buying”
Amazon’s historical advantage on pricing has also eroded. Bain’s research with DataWeave shows that in October and November 2019, Amazon matched or beat competitors’ prices 81% of the time in the categories evaluated. By November 2020, that rate dropped to 74% (see Figure 5).
Its pricing performance is worse in categories such as home goods, which relies more heavily on third-party sales, giving Amazon less ability to influence pricing algorithmically. While Amazon swiftly made efforts to remove third-party sellers guilty of price gouging on essential products in the early months of the pandemic, its pricing advantages have slipped even in nonessential categories.
Figure 5
Amazon’s pricing advantage has declined in some key categories
And consumers are noticing: Based on Bain research conducted in partnership with ROI Rocket, in 2018, customers ranked Amazon in the top 20% of competitors for lowest price and overall value in nine of the 10 categories we analyzed. By 2020, that positioning had slipped significantly across multiple categories. For example, in electronics, Amazon tumbled from the top 15% to the top 40% in consumer rankings for “everyday low prices.” Similarly, it fell from the top 10% to top 30% in home products and decor and the top 40% to top 60% in pet supplies.
With erosion in its price advantage, product availability and shipping speeds, Amazon may have encouraged customers to shop around for gifts this season.
Amazon is preparing to defend its holiday heavyweight title
Amazon’s third quarter performance suggests it is making rapid progress to recover share. The company shattered records once again, achieving all-time-high global quarterly net sales of $96 billion, including more than $47 billion from its first- and third-party retail businesses. Seemingly unaffected by Prime Day’s shift from third quarter to fourth quarter, Amazon’s US retail GMV grew by an impressive 44% over the third quarter last year—in addition to a major boost from ancillary revenue streams like advertising.
Moreover, we estimate that in 2020 Amazon added 10 to 15 million new Prime members—who traditionally spend twice as much as the average Amazon customer—giving the retail giant a boost heading into the holiday shopping season (see Figure 6). This gain is impressive given Prime had already captured a significant share of US households by the end of 2019.
Amazon’s newest Prime members are much more likely to be lower income, a segment Prime hadn’t effectively penetrated before. According to a Bain survey, most new Prime members who signed up during the pandemic saw enhanced value in the offering. They cited desire for faster deliveries, lower prices and additional services, such as Prime Video and Amazon Music, as their top reasons for joining.
Figure 6
Amazon Prime membership has grown in the US this year, especially among low-income households
Amazon is not only attracting more shoppers; more are also making purchases. While Amazon’s desktop conversion rate—the percentage of times a page visit ends in a purchase on a desktop browser—dipped slightly in March and April, it increased to 8.6% year-to-date, according to research we conducted with SimilarWeb. That’s well above its average of 7.8% at this point in 2019 and the top 30 online retailers’ current average of about 5%.
Coming off a strong third quarter, equipped with more Prime members and growing conversion rates, Amazon apparently hasn’t suffered a sustained impact from its pandemic-related stumbles. What’s more, the holiday heavyweight is investing significantly in several areas to ensure it wins share this season and beyond.
A bigger and faster sleigh
In the wake of its spring shipping struggles, Amazon has been expanding its fulfillment and delivery capacity to ensure it can meet customer expectations this holiday season. The e-commerce leader is adding more than 20 new Boeing cargo jets and 2,200 delivery trucks, further reducing dependence on other carriers, which are anticipating delays and increasing surcharges in November and December. In addition to the 175,000 workers it hired in March and April to handle surging demand, Amazon plans to hire another 100,000 for the holidays.
By the end of 2019, Amazon already had the largest logistics infrastructure footprint among US retailers and was the second largest owner of third-party logistics warehousing space—behind only DHL, when considering both business and consumer operations. The retail behemoth has announced it will grow its fulfillment center square footage by 50% in 2020, vs. a 17% annual growth rate from 2017 to 2019. It could have more than an additional 100 million square feet of new fulfillment, distribution center and cargo hub space by the end of 2021.
Prime Day bolstered confidence
These investments paid off during Prime Day, held in October this year. The shopping event once again put Amazon’s network to the test, but this time, it delivered.
Through Pyxis analytics, we estimate Amazon rang in approximately $6 billion of sales in the US during Prime Day on October 13 and 14, up about 50% compared with last year’s event on July 15 and 16. In addition, Amazon’s sales per member per hour skyrocketed, growing an estimated 30% to 40% over Prime Day 2019, up from 13% from 2015 to 2019.
More impressively, Amazon delivered on time, reassuring customers going into the holiday season. Data from Rakuten shows that Amazon’s delivery times during Prime Week decreased to 2.1 days—almost a full day faster than its 2019 average of 3 days (see Figure 7).
This improvement appears to be a direct result of Amazon’s growing fulfillment network. While “click to ship” speeds (the time it takes Amazon to pick and pack the items) have remained at or above 2019 levels, “ship to door” delivery speeds have greatly improved as Amazon has added logistics hubs and reduced the average distance from warehouses to final delivery points. After shipping difficulties early in the year, Amazon may have won over customers just in time for holiday shopping.
Figure 7
Amazon beat its average delivery times during Prime Week
However, while Prime Day 2020 delivered record fulfillment speeds and sales, several competitors successfully crashed Amazon’s festivities with events of their own. Through Pyxis analytics, we estimate Walmart and Target each gained 0.5 to 1 point of e-commerce share during October 13 and 14, compared with their share during Prime Day on July 15 and 16 last year. Meanwhile, Amazon lost 1 to 2 points of e-commerce share. With competitors not letting up, Amazon’s victory isn’t always a given, even during days (and seasons) where it has been historically strong.
Gifts galore
Despite the slight share loss, Amazon has strong momentum heading into the holidays. The heavyweight is gearing up with additional focus on critical categories.
Electronics and media. Once again leaning into a priority gifting category, Amazon released a slew of exclusive owned-brand electronics in late September, including the new Halo fitness band and upgrades to its Fire TV and Echo speaker products. In addition, the new Luna gaming controller and cloud gaming channel are a bold effort to compete head-to-head with next-gen gaming consoles from Xbox and PlayStation, released this year after an almost decade-long wait. On top of these devices, Amazon aims to deepen and further monetize customer engagement with its ever-growing ecosystem and investments in media. Through the pandemic, Prime Video became the second-most-adopted video streaming service, while Amazon Music became the third-most-popular music subscription platform in the US.
Apparel. Industry-wide, clothing and accessory in-store sales are down an average of 30% year-to-date vs. 2019, but apparel remains a popular holiday category. According to a Bain survey conducted with Dynata, 42% of apparel shoppers plan to buy clothing and accessories from Amazon this holiday—beating out department stores, malls, outlets and boutiques, plus other online platforms. Amazon hopes to dazzle these shoppers with innovative digital tools, such as live streaming and “View in 360” technology within its “Luxury Stores”—leaning into fashion just in time for the holidays.
Grocery. While it’s not a typical gifting category, grocery—especially online grocery—is likely to continue its rapid growth this season, as many consumers will be eating at home rather than dining out or attending holiday parties. Grocery hasn’t been Amazon’s strength. When consumers shifted to buying groceries online during the pandemic, the e-commerce behemoth was left behind. Instacart was especially quick to scale its delivery offerings and gain share, while Walmart and Kroger were able to leverage their large store footprints to offer online delivery, BOPIS and curbside. They all achieved much faster growth in grocery sales than did Whole Foods.
Despite these headwinds, Amazon wants its fair share of the grocery pie. It’s preparing to push grocery over the holidays and beyond via its Whole Foods and newest Fresh locations. Amazon plans to make online and in-store grocery shopping more convenient with expanded free same-day pickup for Prime members, notifications for available delivery spots, more efficient delivery from “dark stores” and new contactless in-store technology, including Amazon Dash Carts and the Amazon One palm payment system.
Home. Another booming pandemic category, home furnishing online sales could grow 16% by the end of the year, according to Forrester. As consumers trade travels for cozy nights in, they may want to deck their halls with new furniture and decor. Amazon’s Room Decorator, a new augmented reality tool, allows shoppers to see multiple products simultaneously within their own spaces, making online shopping even easier. Beyond sales, Amazon has won over shoppers in both home improvement and home furnishings this year, with its Net Promoter Score℠ (NPS®)—a measure of a customer’s likelihood to recommend a store or brand—increasing in these categories relative to last year. Amazon looks to ride this wave into the holidays and beyond.
Toys. Amazon recently inked a deal with Toys “R” Us to fulfill its online orders, taking over the role from Target and doubling down on a big holiday category. Although the deal didn’t appear to benefit Target much last year, Amazon aims to experience more of a “halo effect,” given the growth of e-commerce this year and the retailer’s track record. Amazon will have the opportunity to recommend more gifts to toy shoppers who are redirected to Amazon.com to complete their Toys “R” Us purchases.
How can other retailers capture some holiday cheer?
There’s no question that, in a year of exponential e-commerce growth, Amazon is a formidable competitor and will likely see healthy gains this holiday. But other retailers have a unique opportunity to win share, as we saw them do during the second quarter and Prime Day.
As we enter the countdown to the holidays, customer expectations remain high, and satisfaction with Internet retailers overall has fallen 4.9% on average since 2019. Satisfaction with Amazon itself fell 7%, according to the American Customer Satisfaction Index.
Research we’ve conducted with ROI Rocket suggests that Amazon has indeed lost ground in customer advocacy for several years running. Although Amazon’s NPS still ranks in the top five retailers in most of the categories we evaluated, its standing declined in seven of 10 categories since 2017 (see Figure 8). Meanwhile, category specialists such as Ulta, Chewy.com and REI claimed top spots, proving retailers that can differentiate their value proposition and competitive advantage have the chance to win consumers’ wallets.
Figure 8
Amazon's customer loyalty has slipped relative to competitors since 2017
Stellar performance in the moments that matter most, such as ensuring that parents’ gifts for their children will arrive on time, can build lasting loyalty. Omnichannel retailers have an enormous opportunity to delight customers in the coming weeks, especially in areas where Amazon has faltered. Here are three actions retailers can take to gain share and long-term loyalty this holiday.
Fill customers’ stockings with your omnichannel offerings
More consumers are trying—and adopting—BOPIS and curbside pickup, viewing them as safer than in-store shopping and more reliable than online delivery. Use of BOPIS surged during the pandemic, and it will likely endure through the holiday season. In a Bain survey conducted in partnership with ROI Rocket, 23% of shoppers said they are shifting to more BOPIS or curbside pickup this holiday compared with last year. These dollars are up for grabs, provided omnichannel retailers can rise to the logistics challenge.
While Amazon’s delivery logistics and e-commerce fulfillment square footage are unmatched, BOPIS offers several advantages for omnichannel retailers: It can extend retailers’ footprint for online orders, enable them to meet last-minute demand and increase margins by reducing shipping costs.
Amazon’s 560 US store locations pale in comparison to Walmart’s more than 4,750 stores—which have 90% of the US population living within 10 miles. When including retail store square footage, Target’s overall logistics footprint is about 20% larger than Amazon’s, while Walmart’s is about 245% larger.
Winning retailers will continue to leverage physical footprints to offer multiple options for fulfillment, especially for last-minute shoppers in the week before Christmas, when the major carriers—USPS, UPS and FedEx—have warned delivery orders placed after December 15 to 18 will not arrive before Santa. Successful and flexible inventory planning across omnichannel networks will be critical to make sure the right inventory is in the right place at the right time, based on where consumers are shopping.
The benefits of BOPIS and curbside pickup go beyond delighting customers. The major carriers have all increased shipping fees for the holiday season in anticipation of heightened demand. Reducing costs on home delivery can free up dollars for investments in other critical areas of the customer experience and make the e-commerce business more profitable in the long term.
Strengthen feedback loops to accelerate adaptation this holiday
Economic conditions and customer preferences continue to evolve rapidly in this unprecedented year. The holiday season is no exception. While some customers will value promotions in light of Covid-19–induced financial pressure, others may be willing to pay more for guaranteed delivery times. There will not be a one-size-fits-all definition of “value” or way to win customers.
Changing demand patterns may require quick pivots from already strained suppliers, making frequent collaboration critical. And employees—especially frontline heroes in warehouses and on store floors—often have the most up-to-date information and understanding of shipping challenges, safety concerns and shopper preferences and pain points. They can provide extraordinary insights into real-time dynamics.
Many retailers have processes to collect feedback from customers, suppliers and employees. Some top retailers have adopted 15-minute daily huddles in which employees celebrate the day’s successes and discuss ongoing challenges. But how often are the concerns of frontline associates escalated in real time? How often do executives take action on the feedback? And what about huddles for the rest of the organization—including the C-suite?
It’s not too late to improve. In fact, the holiday season is the best time to surprise and delight customers in unexpected ways—which retailers may only discover via frontline feedback loops. Winning retailers will shorten and tighten these feedback loops and rapidly respond by testing, learning and adapting promptly to changing dynamics throughout the season.
Embed agile into long-term planning now
Leadership teams are all too aware that the Covid-19 crisis quickly rendered their 2020 plans obsolete. While most retailers did an impressive job pivoting and innovating at the start of the pandemic, the best will now embed this approach into their operating model—as uncertainty will likely persist into 2021.
Leading retailers will recognize the near-term opportunity to take an agile approach in their planning and budgeting processes. This time around, winning retailers can make a clean break from the tedious templates and endless financial forecasts, instead setting bold, challenging objectives. They will learn and adapt as they go, adjusting their goals weekly, monthly or quarterly. And they’ll define success as improving outcomes for customers, employees, investors and communities—not hitting plans.
One leading retailer has already made the move from annual to quarterly planning and budgeting, recognizing the need to build in more flexibility throughout the year. Others have considered a more venture capital-style funding scheme, committing funds for a given project in increments with stage-gate milestones, ensuring the most promising opportunities gain more funding. This allows retailers to pivot more easily, even entirely redirecting funds from a project that is unlikely to be successful.
As retailers navigate this unprecedented season, those that opt for performance over predictability will come out on top.
Looking forward: Future release dates and topics
Here’s a preview of our upcoming newsletters:
- Issue 4 (December): Mid-season check-in and shopper experience insights
- Issue 5 (January): Post-holiday recap and trends for 2021
We look forward to sharing holiday headlines with you and hearing your feedback throughout the holiday season.
About our research partners
Advan provides hedge funds, real estate investors, retailers and businesses with insights into foot and vehicle traffic and behavior that enable them to make better business and investment decisions. Advan processes billions of daily foot traffic observations from thousands of cell-phone applications on 150 million locations and over 2,250 companies across all sectors. Advan is headquartered in New York City. For more information, please visit www.advan.us.
Ascential is a global specialist information company that partners with businesses to win in the digital economy. Edge by Ascential provides customers with comprehensive and actionable e-commerce-driven data, such as real-time digital shelf performance metrics, monitoring of price movements and product listings, and SKU- and category-level online sales and share. For more information about Ascential, visit www.ascential.com.
DataWeave provides competitive intelligence as a service to e-commerce businesses and consumer brands via massive scale aggregation and analysis of web data. The company’s AI-powered technology platform enables retailers to make smarter pricing and merchandising decisions to drive profitable growth as well as consumer brands to protect their online presence, enhance their availability and optimize their discoverability. To learn more about DataWeave, visit www.dataweave.com.
Rakuten Intelligence provides trusted data and insights from its large online-shopper panel, helping manufacturers, retailers, technology companies, investors and media better understand e-commerce. Based in San Mateo, California, Rakuten Intelligence is an independent, wholly-owned subsidiary of Japanese e-commerce platform Rakuten. To learn more, visit www.rakutenintelligence.com.
ROI Rocket is a leading provider of full-service research, fulfillment and digital and direct marketing support to a broad client base of consultants, investors, publicly and privately held corporations, agencies and market research firms. ROI is a Bain customer advocacy benchmark partner in Grocery and 10 other retail categories. For details, visit www.roirocket.com or contact Noah Seton (noah.seton@roirocket.com).
Pyxis is a powerful data analysis platform that reveals where, how and why consumers buy, how they pay, how much they spend, how their needs and demands are changing, and much more.
The authors would like to acknowledge Sarah Irizarry, Emily Harris, Bela Uribe and Noopur Kamal for their contributions to this newsletter.
Net Promoter®, NPS®, NPS Prism®, and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld. Net Promoter Score℠ and Net Promoter System℠ are service marks of Bain & Company, Inc., Satmetrix Systems, Inc., and Fred Reichheld.