The fall nip in the air brings out sweaters and new TV shows, and it also means that retail’s busiest period is almost upon us. Holiday shopping season has traditionally been all about planning ahead and while that hasn’t changed, the clouds of unprecedented uncertainty hovering this year mean that the happiest retailer at the end will be the one that is the most fleetfooted.
According to the proprietary AlixPartners annual forecast, holiday sales are predicted to rise between 4.4% and 5.3% on $597 billion in 2019. This would be a clear improvement on last year’s tepid growth of 2.3% and a welcome relief.
Of course, last year’s holiday period included the longest government shutdown in history, lasting more than a month, likely dampening holiday shopping. While our 2019 forecast is an upswing from last year, tariffs and the trade war are finally beginning to take a hit on consumer confidence, and the buzz of an oncoming recession is getting louder. US household sentiment fell 8.6 points in August, according to the University of Michigan’s index, its largest monthly drop since December 2012. A third of the consumers surveyed saw tariffs as a negative driver.
While tariffs have not yet taken a marked toll on prices of finished consumer goods, this might change soon. At the start of September, products including smartwatches, drones, TVs, headphones, and smart speakers began to be subject to an extra 15% tax for companies importing them from China, and an additional group of consumer technology items such as smartphones and video game consoles are on the list for tariffs set to take effect in December. These products, of course, fall on many holiday shopping wish lists.
To dig deeper into the potential impact of tariffs over the holidays and get a pulse on consumer expectations and spending plans, we conducted our annual AlixPartners Holiday Consumer Shopping Survey. Only 36% of respondents reported feeling positively about the economic outlook, compared with 45% last year[i]. And when confronted with a hypothetical price increase of 10% or more due to tariffs on an item they intended to buy, only 40% of respondents said they would be willing to pay a higher price and still make the purchase. One in two consumers would instead switch brands for a lower-priced option.
Adding to the unpredictability are the new bets that legacy retailers are making with refreshed or novel business models. Stepping beyond the tried and true tactics of flexible supply chains providing fast and free shipping, retailers such as Macy’s, Neiman Marcus, and Urban Outfitters are experimenting with subscription services, rentals, and resale models. Even more unprecedented are the strange bedfellows being created in the returns space as Amazon, Macy’s, and Nordstrom partner in different ways to accept returns from what are traditionally competitors. Many of these efforts are new this year, which means that it remains to be seen whether legacy retailers have the operational agility to make them work.
Operational agility will be the name of the game during the holiday season. Here are what retailers must do stay nimble, crowd out the uncertainty, and react quickly:
- Connect with the consumer: Consumers will always tell retailers what they do and don’t want when it comes to products, shipping expectations, and price. Listen keenly and be prepared to make decisions quickly.
- Keep an eye on external factors: Be prepared to confront the challenges being posed by the effects of economic indicators and other uncertainties looming heavily on the horizon. Track the fitness of the business frequently during this critical period and adjust tactics and strategy accordingly.
- Focus on flawless execution: Any program or model is only as good as the planning that goes into it, its implementation, and ongoing execution. Be strategic about what differentiated value-added services to offer and implement the infrastructure to deliver them efficiently. Know which tools to use and how to use them.
The upcoming months are often the make-or-break period for a retailer’s year. As they develop their holiday strategies and hope for an improved performance on last year’s numbers in the last quarter of the year, the key terms will be agility and quick responsiveness.
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