Things were stacked against retailers this holiday season, and it seems they may have pushed too hard to please. Consumer demand was anemic, and there were fewer days to shop because of the late November date for Thanksgiving. Foot traffic in stores dropped off in December. Retailers responded with aggressive discounting, then tried to force through more last-minute shipping deals than UPS (UPS) could handle. The result? Unhappy customers and concern about ever-narrowing profit margins.
Sales of holiday items increased 2.3 percent compared with last year, according to Mastercard (MA) data cited by the Wall Street Journal. But retailers got there by lowering prices, continuing a reliance on discounts that has had many industry observers nervous since the financial crisis. This takes the luster off what gains were made, says Gian Fulgoni, chairman of comScore (SCOR). “I think we’ll look back at this online holiday season as one where absolute dollar sales gains in consumer spending were held back by heavy retailer price discounting that occurred in an attempt to stimulate consumer demand,” he says in a statement.
Then there were the shipping problems. UPS has been planning for the last-minute crush for a year, but admitted that it couldn’t keep pace with a wave of orders. FedEx (FDX) had trouble, too, and customers from retailers such as Amazon.com (AMZN), Kohl’s (KSS), and Walmart (WMT) were left empty-handed Wednesday. Amazon passed out gift cards and offered refunds to customers whose last-minute purchases didn’t arrive in time for Christmas. It blamed the fiasco on UPS. But it also looks like retailers may have left UPS in the lurch as they tried to entice shoppers by pushing the limit on how late they could order items.
“At the last minute this year, a number of retailers extended their cutoff date to get there by the 24th,” Craig Johnson, president of Customer Growth Partners, tells Bloomberg News. “Normally those kinds of schedules are all kind of prepared or coordinated with the carriers.”
Sucharita Mulpuru, a retail analyst at Forrester, says bad communication seems to have led to businesses over-promising. “It’s easy for the marketing folks to just send an e-mail promising delivery to a bunch of people,” she says. “In 99 percent of cases, it doesn’t matter because there’s capacity in the distribution center to accommodate it, but it’s dangerous when a retailer does that in the days before Christmas.”
Even if the shipping hadn’t been a problem, the late deals weren’t enough to make the end of the holiday season as active as the beginning. According to ComScore, there were 10 days this year where online shopping activity surpassed $1 billion, down from 12 in 2012. All of those days came between Black Friday and Dec. 12.