The Pandemic Reshapes the Holiday Retail Season: Evolution and Outlook from 2019 to 2022

Fall is the "crystal ball" season for retail. As the industry prepares for the holiday sales season, forecasts abound. Consumer surveys, macroeconomic data analysis, executives fielding analyst questions about the latest store data—these have intensified during the pandemic, as the world seems to change dramatically every month. The retail holiday season has undergone many twists and turns during the pandemic, with COVID-19 shaping the period in expected and unexpected ways, varying each year.

As another holiday season of uncertainty approaches—the third since the pandemic arrived in the United States—looking back is as important as looking forward.

2019: The Last Normal Before the Pandemic

Imagine a world where the word "pandemic" was used mainly by historians and scientists, and ordinary people, when asked on the street, would say they gave little thought to the "supply chain" of the goods they purchased. It was a simpler but still familiar time. The last holiday season before the pandemic was characterized by growth in mobile and online shopping—which would accelerate dramatically the following year. Still, 84.2 million shoppers walked into physical stores on Black Friday. Shopping crowds—as long as they weren't trampling each other for discounted items—did not themselves pose a danger.

Despite the prevailing "retail apocalypse" narrative at the time, the industry still recorded sales growth for the season (e-commerce grew nearly 19%). A significant amount of shopping occurred during the traditional frenzy days around Thanksgiving: nearly 40% of the season's sales came from Black Friday and Cyber Monday. This created a short sales season, with many consumers delaying purchases until late in the season, either seeking better discounts or naively believing they could always buy what they wanted. Black Friday foot traffic declined, but buy-online-pick-up-in-store was gradually gaining traction. Both trends would accelerate dramatically the following year.

2020: Pandemic Shock and the Reshaping of the Shopping Season

By Black Friday 2020, the world had endured a once-in-a-century pandemic for more than six months, and the United States had seen over 200,000 deaths. Stores had experienced weeks of closures and revenue declines in the spring, as retail made efforts to help the world "flatten the curve." When they reopened, they had a blueprint for operating during the pandemic: mask requirements, capacity limits, crowd control, sanitation protocols, and a host of other measures.

However, consumers still had reason to be cautious. Public health authorities warned that a dark winter was coming, with more COVID-19 cases, illness, and death ahead. Against this backdrop, few had confidence in predicting holiday sales levels. On one hand, many consumers had suffered physically or economically during the pandemic, or both. Much of the country canceled gatherings, holiday parties, and travel during the season. On the other hand, people needed something to look forward to, and the holidays were a welcome respite from the pandemic gloom for many.

Professional forecasters hedged their bets. Deloitte issued a "K-shaped" forecast, with sales expectations either low or moderately growing, depending on how different factors of the season evolved. Holiday shopping in 2020 was also affected by timing. Retailers tried to avoid Black Friday crowds (and perhaps also the pressure of peak-season e-commerce delivery) by encouraging early shopping. Amazon—which had delayed Prime Day due to needing to focus on household essentials early in the pandemic—moved its member shopping event to October. As with usual Prime Day, other major retailers followed suit. Early shopping prompted AlixPartners to declare that the traditional holiday shopping period had become "meaningless" in 2020.

The spread of holiday shopping earlier into fall may indeed be one of the pandemic's lasting effects on the period. "The length of the selling season—I think it's going to last at least a few more years," Katie Thomas, head of the Kearney Consumer Institute, said in an interview. "We went from supply chain issues last year to inflation this year, and trying to give people a longer shopping window." Interestingly, Thomas noted that most consumers who purchased during the October 2020 sales push weren't actually shopping for the holidays. "They just weren't ready yet," Thomas said. "I think that's what changed on the consumer side. They're more ready now, more open." In other words, the first year of early holiday sales may not have achieved its intended effect, but it taught consumers to shop earlier in subsequent years.

The traditional Black Friday shopping event, whose importance had already been declining, collapsed entirely in 2020. On one hand, Walmart and Target announced they would close on Thanksgiving, reversing the trend of shopping spreading into the holiday. Black Friday foot traffic plummeted, by one estimate dropping more than 50%. Overall spending over the Thanksgiving weekend declined. But digital sales saw double-digit growth, and curbside pickup grew more than 50% year-over-year on Black Friday 2020. Although many retailers promoted curbside pickup and BOPIS for pandemic safety reasons, Alexa Driansky, retail practice director at AlixPartners, said in an interview that survey data shows these channels were primarily a convenience choice for consumers and have waned since 2020. "Especially when consumers can now get free shipping to their door, they really enjoy that convenience," Driansky said. "They really have no reason to use curbside pickup or BOPIS unless they need a last-minute pickup." Widespread e-commerce shopping may also have encouraged consumers to shop early, as experts and media (including this outlet) warned that gifts ordered too late might not arrive in time. Although digital and omnichannel growth has slowed or even reversed in some cases, more consumers have become accustomed to the convenience of online shopping.

2021: Supply Chain Crisis and Vaccine Rollout

Between the end of the 2020 holiday season and the 2021 holiday season, a lot happened. Most importantly, vaccines became widely available to the American public, extending to children as young as five. While vaccines did not stop the ongoing spread of COVID-19, they significantly reduced hospitalizations and deaths. Vaccine access and pandemic management were uneven globally. As American consumers got vaccinated and went out shopping, many countries producing the goods they purchased were still suffering deadly outbreaks and experiencing lockdowns. China closed major port and factory cities to control COVID-19. In Vietnam, the pandemic led to factory closures or slowdowns in several regions. Bangladesh, India, and several other major manufacturing areas also saw outbreaks. All of this compounded capacity constraints in the supply chain, a result of the economic standstill in early 2020. Consequently, in 2021, supply chain bottlenecks and sharply rising demand defined the year for retail.

Empty shelves, rather than social distancing, became the consumer's top concern. Companies like Walmart, Target, and Amazon tried to assure customers that they would ensure adequate holiday inventory. "People are very aware of supply chain issues," Kearney's Thomas said. "74% of consumers told us they were okay with gifts arriving after the holidays." Despite the supply chain collapse narrative, the season still brought strong sales, and many companies, despite soaring freight and supply chain costs, posted healthy profits due to high prices and low discounts. The highly publicized supply chain issues of that year may have cemented the earlier start of the holiday season and consumer comfort with online shopping, as it allowed them to check inventory online and avoid going to stores only to find empty shelves.

2022: Inflationary Pressures and the New Consumer Normal

At the start of this year, as supply chain pressures eased, retailers may have hoped the holiday season would return to normal. But the year has been far from normal. With Russia's invasion of Ukraine and the turmoil it caused in energy markets, inflation has squeezed consumers even harder. Consumers have responded to high gas and food prices by going on the defensive with discretionary spending. The collective anxiety of 2020 was about the pandemic, 2021 about supply chain failures, and this year the focus is mainly on prices. A KPMG survey of retail executives confirms the dramatic shift since last year. Last year, 80% of surveyed executives said they were somewhat or very concerned about holiday inventory shortages in 2021, but this year only 11% expect significant shortages, with a majority (59%) expecting only minor shortages, according to KPMG.

Meanwhile, consumers are highly focused on price. According to an AlixPartners survey, 39% of consumers plan to make at least half of their holiday purchases on promotion, and 40% said they plan to buy more affordable brands. "Last year consumers had plenty of cash, with full wallets, thanks to government stimulus," Driansky said. "This year sentiment has changed dramatically compared to previous years... This is mainly driven by economic factors. Inflation affects affordability, and consumers are very worried about the current economy and where it will be a year from now. That was absolutely not the case in 2020 or 2021." With more price-sensitive consumers, retailers may still have inventory to clear as the holiday season begins, which could lead to a promotion-rich season. "There's a lot of excess inventory in the market, so we'll see a lot of discounts and bargains," Bill Krogstad, managing director of the retail and consumer goods practice at FTI Consulting, said in an interview. "Additionally, due to inflationary pressures, we'll see customers looking for these deals during the season." Krogstad added that beyond seeking discounts, consumers may reduce big-ticket purchases during the holidays.

Retailers this year are also, as they have been since the pandemic, giving consumers opportunities to shop early. Target, Amazon, and others plan sales events in October that could kick off the holiday season. Consumers may now be more prepared to take advantage of these opportunities. "If there's room, when retailers roll out sales in October, they'll start looking for deals," Thomas said. "In some ways, consumers are at a disadvantage in this longer holiday season," Thomas added. "It's positioned as an advantage because it's theoretically longer, but you don't know when to strike." Beyond getting used to shopping early, consumers have also become more comfortable with digital shopping. According to AlixPartners, 40% of surveyed consumers plan to do most of their holiday shopping online, up 10 percentage points from a pre-pandemic survey in 2019. Additionally, about three-quarters of consumers research products online before purchasing, according to Driansky, meaning consumers rely less on information and recommendations from retail staff. "That's something that's always going to be there," Driansky said.