Holiday readiness guide

Trends and tips for your retail sales strategy

Introduction

For retailers, gearing up for the holiday season has historically meant serving up a plate of tasty offers with all the trimmings in anticipation of the peak buying period in the United States from Thanksgiving through Cyber Monday. But, the definition of the holiday season may be changing as stores try to lure deal-hungry shoppers to buy earlier — and many consumers are biting. The perfect recipe book for cooking up profits is forever evolving.

This guide includes early predictions for what retailers can expect for the 2022 holiday sales season, factors you need to consider as you develop a sales strategy, and tips to help stay tax compliant.

Expect the 2022 holiday sales season to start early

In some ways, the 2022 holiday season will look the same as previous years. Retailers can still depend on Thanksgiving, Black Friday, and Cyber Monday to have the most sales. However, those days aren’t expected to grow as fast as any other day during the holiday season, predicted Jason “Retailgeek” Goldberg, chief commerce strategy officer for Publicis Groupe and a member of the National Retail Federation (NRF) Digital Advisory Board. Sales during November and December 2021 grew 14.1% over the same period in 2020 to $886.7 billion — setting new highs for both the growth rate and amount spent by shoppers, according to NRF numbers compiled from U.S. Census Bureau data. Statistics from eMarketer report even greater growth, a 16.1% increase year over year to $1.221 trillion.

Many consumers began shopping in October last year, NRF reported. This year, it’s likely that more retailers will try to shift focus away from the primary shopping days and push for early sales. “Every retailer wants to convince the consumer to spend money with them before they go somewhere else, so there's an arms race to start the holiday season earlier,” Goldberg told Avalara.

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CONSIDER YOUR SUPPLY CHAIN NOW IN ORDER TO BE HOLIDAY READY

Competition is just one factor. Managing fulfillment will be an even greater factor. Last year brought a chip shortage that halted the production of electronic gadgets, container ships stuck at ports, and a shortage of truck drivers. Amazon and Walmart drove ecommerce sales in 2021 because they could solve supply chain challenges that smaller businesses couldn’t. Retailers that could form partnerships, innovate in other ways, and prioritize which products were most important to get on shelves also fared better than others.

It could be years before the supply chain breakdown is fully resolved, the New York Times reported. “The number one thing you should be doing for holiday readiness is making sure you have a supply chain and a way to get those goods to your customers in time,” Goldberg said. Retailers came out on top last year when it came to shipping products that were in stock. UPS, FedEx, and the U.S. Postal Service delivered products on time. All three shippers made investments in increased capacity, plus many buyers shopped early, which helped to avoid the shipping delays we saw in 2020.

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UNDERSTAND HOW STORING AND DELIVERING GOODS CAN IMPACT YOUR NEXUS

How you get your goods to customers can impact your sales tax obligations. If you store inventory in a warehouse or use a fulfillment center to process orders, you may have physical nexus. Delivering products in your own vehicle can also create nexus in some states. Nexus becomes particularly complicated when you use third parties to drop ship your orders; it’s not always clear who is responsible for collecting and remitting sales tax and you may be on the hook to collect resale exemption certificates. Refer to our Know Your Nexus guide for more ways you can trigger nexus and track your activities carefully.

Sales at brick-and-mortar stores make a comeback

Consumers want to shop in person. Black Friday foot traffic was 47.5% higher in 2021 than 2020, but remained 28.3% below 2019 levels. However, an NRF survey found that 46% of consumers started their holiday shopping earlier than they typically do. Data from Placer.ai shows that many stores saw foot traffic levels above 2019 earlier in the fall, a trend both Placer.ai and Goldberg attribute to retailers’ ability to shape consumer behavior. Shoppers may also have realized they had little choice due to limited inventory, CNN reported.

Predictions for brick-and-mortar sales in 2022 vary. According to Deloitte, approximately 74% of consumers feel safe going to the store as of April 2022. Placer.ai said Black Friday sales at brick-and-mortar stores should surpass 2021 levels, but are unlikely to reach those seen in 2019. However, Goldberg pointed out that there’s been pent-up demand to shop in stores and said that assuming the pandemic situation improves, retailers will likely see greater foot traffic during this year’s overall holiday season than they did in 2019. A forecast from eMarketer suggests a slight uptick in brick-and-mortar sales over 2021.

Increasingly, stores are serving as more than just a place to shop. Shoppers continue to appreciate flexible shopping options like buy online, pickup in store and curbside pickup. The pandemic saw omnichannel retailers using stores as fulfillment centers, a trend that seems likely to continue as they explore creative strategies to meet increased demand. Target fulfills 96% of its ecommerce orders by shipping products from its stores.

foot traffic was 47.5% higher in 2021 than 2020, but remained 28.3% below 2019 levels.

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Promote aggressively and offer a personal touch in-store

Retailers looking to drive foot traffic might take a lesson from the Target playbook. While other stores such as Walmart and Best Buy saw foot traffic fall, visits to Target were up 6.2% during the 2021 holiday season compared to 2019. Target was able to maintain stock, use aggressive promotions, and offer curbside and buy online, pickup in store fulfillment, advisory firm Coresight Research told Reuters.

Stores should also seek to differentiate themselves from the ecommerce experience, which can’t replicate face-to-face interaction. Making the visit memorable with surprise-and-delight moments can turn first-time buyers into repeat customers.

Holiday 2022 ecommerce sales are likely to climb, but at a slower pace than last year

Ecommerce will also continue to grow and 2022 holiday season sales will be greater than 2021, which was the best ecommerce year ever, Goldberg said. However, he predicted the rate of growth will slow down. Holiday 2021 ecommerce trends show nearly $1 in every $4 spent on retail purchases came from online orders, Digital Commerce 360 reported. U.S. shoppers spent $211.41 billion online during last year’s holidays, up 10% from the prior year. While online purchases were significantly slower than the 2020 holiday period, sales were still up 54.9% over 2019. Cyber Monday sales dropped 1.4% to $10.7 billion but the day remains the biggest for online shopping of the year, according to an Adobe Analytics study. Growing awareness of supply chain challenges and product availability led many consumers to not wait around for discounts on Cyber Monday or Black Friday.

The pandemic spurred a lot more people to shop online. The question that remains is whether that’s a permanent new behavior or they’ll return to buying those products in brick-and-mortar stores. Goldberg says data can be found to support both sides. “What's really happening is people are spending more and so both channels go up. Ecommerce isn't going to capture quite as much of the total sales as it did at the peak of the pandemic when people were afraid to go to a store,” he said. The New York Times noted that physical stores beat out online shopping throughout 2021.

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Establish a digital footprint for your business

Shopping used to be about discovery in the moment: Parents would visit a toy store, browse the aisles, and select a gift for their kid. Increasingly, shoppers already know what they want before making a purchase in store or online. They’ve read reviews, followed influencers, and searched product websites. Research shows that nearly two-thirds of sales are digitally influenced as of 2021, compared to close to half pre-COVID-19. Goldberg said retailers need to make sure they’re part of those digital touch points. That means making sure they show up in search results. It may also mean sponsoring influencers on YouTube.

It's important to be aware that advertising on digital channels can trigger click-through nexus. Under click-through nexus laws, your out-of-state business can establish a physical connection to a state through an agreement to reward a person for directly or indirectly referring potential buyers through links on a website.

When you sell to buyers through multiple channels like your website, online marketplaces, and social media, you’re more likely to have economic nexus. Economic nexus laws are based on your sales revenues and/or transactions into a state. As your business grows and you reach customers in states you’ve never sold to before, you could exceed sales volume or revenue thresholds. If this happens, you’ll need to register to collect and remit sales tax in those states.

Shoppers will look to make their dollars count this holiday season

The 2022 holiday shopping season could be the first in years to occur during a bear economy. A March 2022 survey by the University of Michigan found that 32% of all consumers expected their overall financial position to worsen in the year ahead, the highest recorded level since the surveys started in the mid-1940s. Nearly half of consumers said they planned to cut their holiday spending last year, with 23% saying inflation was the primary factor in their decision. Meanwhile, a chief economist for NRF predicted consumers will keep shopping. “When inflation's really high, that actually helps sales because people have to pay more but it means the customer's dollar doesn't go as far. If I'm a retailer, and I'm thinking about getting ready for holiday, I need to think about a consumer that may be trying to stretch her budget further than she usually is and might be more value oriented,” Goldberg said. He described what is known as the lipstick effect and said retailers should promote affordable luxury items instead of aspirational products this season.

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Add sales tax compliance to your holiday sales strategy

Considering sales tax compliance as part of your overall holiday preparations can support your business’s revenue goals, enhance the customer experience, drive efficiency and cost reduction, and accommodate growth and change.

Shoppers have grown accustomed to viewing tax and shipping in their online shopping cart. According to the Baymard Institute, 48% of shoppers abandon their cart because they consider taxes, shipping, and fees to be too high. To avoid shopping cart abandonment, retailers need to provide speedy, accurate, and consistent sales tax calculations across all channels. You can achieve this with automated sales tax calculation software.

During the holidays, retailers expand product lines, head count, and pop-up locations to meet increased consumer demand. In doing so, sales and use tax obligations can quickly change because of rapid growth across multiple sales channels. As you grow and sell into additional states through more channels, more resources are required to keep up with multiple sales tax jurisdictions, differing tax regulations, and filing requirements. A well-executed compliance strategy can help you do more with less. Moreover, it can be the deciding factor between successfully defending an audit or facing penalties.

Follow these five steps to achieve end-to-end sales tax compliance as part of holiday preparedness and beyond:

Know where your business has an obligation to collect and remit sales tax. Your first priority should be figuring out where you have nexus if you’re unsure. You also need an effective way to track new nexus.
Register to collect and remit sales tax. Jurisdictions require different business licenses, forms, and registrations, so make sure you know what’s needed.
Calculate the correct sales tax amount. There are more than 13,000 sales and use tax jurisdictions in the United States, and each has different tax rates and product taxability rules. Ensure you have an efficient way to apply the correct rates to all items you sell for each jurisdiction you sell into.
Track and manage exempt sales. Businesses can be assessed penalties for missing or expired exemption certificates. Having an efficient solution to collect, track, and validate exemption certificates during the checkout process can save you time and help during audits.
Remit sales tax to the tax authority. States have different procedures and deadlines for sales tax returns so make sure you understand filing requirements.

Follow these five steps to achieve end-to-end sales tax compliance as part of holiday preparedness and beyond:

Know where your business has an obligation to collect and remit sales tax. Your first priority should be figuring out where you have nexus if you’re unsure. You also need an effective way to track new nexus.
Register to collect and remit sales tax. Jurisdictions require different business licenses, forms, and registrations, so make sure you know what’s needed.
Calculate the correct sales tax amount. There are more than 13,000 sales and use tax jurisdictions in the United States, and each has different tax rates and product taxability rules. Ensure you have an efficient way to apply the correct rates to all items you sell for each jurisdiction you sell into.
Track and manage exempt sales. Businesses can be assessed penalties for missing or expired exemption certificates. Having an efficient solution to collect, track, and validate exemption certificates during the checkout process can save you time and help during audits.
Remit sales tax to the tax authority. States have different procedures and deadlines for sales tax returns so make sure you understand filing requirements.

To learn how Avalara can help you each step of the way, read Five steps to managing sales tax for retailers.

Enjoy a brighter holiday season with Avalara

As you set up your supply chain, establish or reinforce your online presence, and plan your holiday promotions, you can look to Avalara to lift the burden of sales tax compliance. Our tax automation specialists are available to assist you in finding the right solutions so you can gift yourself a successful season. To learn how Avalara can meet your specific needs, call 877-780-4848. If you’re already an Avalara customer, please reach out to your account manager.

Tax rates, rules, and regulations change frequently. Although we hope you’ll find this information helpful, this report is for informational purposes only and does not provide legal or tax advice.