The 2022 holiday season concluded on a stronger note than many retail industry onlookers anticipated. Data from Mastercard shows that in the US, retail sales rose 7.6% year-over-year (YOY) this holiday season, from Nov. 1 to Dec. 24. Both higher prices and improving consumer sentiment seem to have buoyed these better-than-expected results, of which we'll learn more during the coming months, as retailers report out their Q4 earnings. But in the meantime, we've now got enough data to understand the extent to which discounts encouraged this consumer spending.
Ahead, three stats on how discounting played out during 2022.
Average discounts were lower in 2022...until October
To say we've been living through an unprecedented time for retail over the past few years is the understatement of the century. First, Covid gutted demand for many fashion categories, then rebounding demand met backed up supply chains, followed by crazy inflation which dented discretionary spending...and these are just the highlights. But the point is you can actually see this disruption in the data below.
Average discounts had started off 2022 at a low point, when retailers had less inventory from holiday 2021 and were recovering from Covid disruption. But as the months ticked by in 2022 and inflation crept (or more accurately jumped) in, discounts increased and ultimately surpassed 2021 levels in October 2022 - ahead of the holiday season - indicating that many retailers had excess inventory they were worried about moving.
Average days to the first discount declined drastically in 2022
One of the key metrics that can indicate product-market match and shed light into the health of the consumer is average days to first discount. In other words, how long can a retailer wait before taking that first markdown? In an ideal world, the longer you can maintain full price, the better your margins will be down the line. The trend that emerged in 2022, however, was striking and concerning.
We saw that starting in June of 2022, the number of days to that first discount started to go down, meaning products were getting marked down earlier than in 2021. And where the trend really took momentum was in Q4 of 2022, where the average number of days to first discount declined 19% YOY, from an average of 104 days in 2021 to 84 in 2022. This stat should serve as a warning flag to retailers, as this type of sustained promotional activity can encourage and ultimately train consumers to wait to buy until a discount, while simultaneously eroding profit margins.
Even beauty saw record-high amount of discounting in 2022
While fashion might be the focus on much of this data, we'd be remiss if we didn't call out another point from StyleSage's universe of beauty data. The beauty industry continues to grow, fueled by innovative products, great retail experiences, and strong social media engagement. But is everything sunshine and roses in the beauty industry? Our data highlights one area beauty brands ought to pay closer attention to in the coming months.
What we typically see for fashion brands is average discount penetration (or how much of the assortment is on sale) typically ranges between 30-40%. So in the context of this, we can see that beauty discounting is significantly lower than fashion. However, we see that during several points in 2022, discounting was higher than the previous year. In fact, it reached peak levels in November and December of 2022, indicating that despite its relative health, promotions were also necessary to encourage consumer spending. We recommend brands and retailers in the beauty space keep a close eye on this stat as 2023 continues to understand if discount creep becomes the new norm.
Want additional insights on how retail performed in 2022 - so that you are prepared for a stellar 2023? Get your copy of StyleSage's Year in Review Report today.