5 Reasons Retailers Could Miss Their Holiday Sales Targets

Times are tough right now. Inflation has been on the rise. In fact, the annual inflation rate in the US rose to 2.6% in October 2024, up from 2.4% in September 2024. And consumers have been feeling the pinch on their wallets. According to a Gartner study, 21% of consumers plan on reducing their holiday spending this year due to inflation.

While consumers won’t necessarily cut out holiday shopping altogether, they’ll likely spend much less per gift and buy fewer gifts. On top of this, a study by InvoiceHome and Censuswide revealed that 11% of shoppers will delay their holidays to 2025 so they can buy gifts during post-Christmas sales.

“Discretionary income is almost non-existent for many people now,” says Yesinne Alvarez, Partnerships, Alliances and Trade Data for Creditsafe. “So much more is now going towards housing, food and other essentials like insurance.”

All this will have a knock-on effect on retailers this holiday season. Consumers choosing to – or being forced to – spend less money on “fun” purchases like holiday gifts will lower overall sales volume for retailers. Simply put, lower spending equals lower sales volume, which in turn can lead to lower revenue and reduced cash flow.

The concept of buying an item and paying for it in installments is nothing new. Credit cards, as we know them today, were first introduced in the late 1800s and layaway programs began during the Great Depression. As more shopping has shifted from in-store to online, we’ve seen paying for shopping in installments shift too.  

Once considered a shopping novelty, Buy Now Pay Later (BNPL) has morphed into a multi-billion-dollar industry across the globe. In 2023, the BNPL market size was valued at $30.38 billion – and it was projected to grow to $167.58 billion by 2032. With BNPL services being offered by Klarna, Clearpay, PayPal Pay in 4, Splitit and others, consumers are taking advantage of it as much as possible. A few reasons consumers love Buy Now Pay Later programs include:

• Break up larger purchases into smaller, more affordable chunks

• Payments can be automatically scheduled  

• Easy to monitor spending

As much as consumers love Buy Now Pay Later, it’s not always a good thing for retailers. For one, BNPL services charge merchants a transaction fee – which can be between 2-8% of the sale cost. These fees can reduce retailers’ profit margins. And then, there’s the issue of delinquencies. According to a 2024 Motley Fool survey, 39% of BNPL users have made late payments.  

Unfortunately, BNPL can open the door to fraud too. For example, some BNPL service providers don’t have the most robust identity verification processes. This is something fraudsters can exploit and create fake accounts or use stolen identities to make purchases – and then not pay the installments. 

Let’s say you’re a retailer selling a hot-ticket item this holiday season. You’ve ordered enough stock well in advance and you should be in a great position by the time holiday shoppers are ready to buy. But as the holiday season creeps closer and closer, you notice that your supplier hasn’t shipped out your order. When you contact the supplier, they tell you that they’ve run out of money and have had to stop all production immediately because they can’t afford to pay their workers and can’t pay for other expenses. 

What does this mean for your business? The high volume of orders coming in for high-demand items during the holiday season could either be delayed – or worse yet, won’t be fulfilled at all. So, now you’ve got a serious inventory problem. And you’ll likely have to scramble to get that order completed by a different supplier. What if your existing, preferred suppliers are already at capacity and can’t take on any more orders (let alone, urgent orders)? Not only will you have lost the money you already spent with the supplier that’s shut down, but you’ll likely have to spend more than you originally budgeted to get a last-minute, order completed by a supplier.  

There’s another way to think about this. Imagine how frustrating and upsetting it’ll be for your customers – especially if they need those items to arrive on time as holiday gifts for their families and friends. You’ve now upset a loyal customer base – and increased the chances that they’ll ditch your products and brand for a competitor. That means your overall revenue could drop.

Why am I sharing this scenario? I don’t want you to have this situation happen to you. It’s very easily preventable. All you have to do is run a business credit check on every supplier you work with to make sure their finances are in good order and they have a positive track record of paying their bills on time. If they pay their own bills on time, then it’s more likely they have a healthy cash flow and won’t have to shut down the business all of a sudden. 

Keeping track of inventory management is always important, but it’s even more so during the winter holiday season. As our research found, 78% of retailers had up to 50% of their 2022 winter holiday stock left over by the time the 2023 holiday season rolled around. And instead of re-evaluating the amount of stock they should order for 2023 based on that, 44% said they would order the same amount – with 25% saying they’d order more.  

The costs of excess inventory can seriously add up. There’s never a guarantee that leftover inventory will sell the next season – who knows how taste and habits will change year over year? Our study saw 22% of surveyed retailers say that surplus stock led to reduced profit margins in 2022. 

“Before, holiday orders that shipped to retailers in August and September would need to be restocked by November,” says Alvarez. “This would be the time of year retailers would be calling to order more stock to satisfy the winter holiday demand. But now, the idea of restocking like that is almost non-existent.”

And what happens when stock isn’t selling? Well, that all adds up too. You’ll need to pay to store excess stock in warehouses and hope that public opinion and trends haven’t changed too much to sell it again next year. Plus, the value of the goods will depreciate the longer they go without selling. And that’s if the stock is in good enough condition to sell next year – stock could be damaged in warehouses, either by mishandling or weather conditions. Altogether, excess stock can take a huge toll on your bottom line.