Consumers mean business this holiday season, giving retailers both reason for optimism and a warning that any missteps may prove to be costly.
We forecast holiday sales are likely to increase by 10-13% over last year’s numbers, which would make 2021 the strongest holiday period in more than two decades. In the AlixPartners holiday survey, 88% of consumers said they planned to spend the same or more this holiday than last year, while only 12% planned to spend less. Even the recent rise of the delta variant of the coronavirus isn’t likely to slow consumers down, with only 12% saying this was either already decreasing or likely to decrease their holiday spending.
Last year we talked about how the formal November-December holiday shopping season had been rendered meaningless and that consumers were going to both shop earlier than usual and spread out their holiday purchases over a longer time frame. Our surveys show this holds true this year as well, and the trend may even be picking up pace. Around 53% of consumers plan to start shopping before Halloween, up from 49% last year (Figure 1).
In short: Consumers are keen to spend, but retailers have no room for error at a time when supply chain problems are weighing heavy and labor shortages continue to be a challenge.
In 2020 most retailers had chosen to keep inventory levels low, which helped achieve fewer markdowns and higher gross margin. However, this year’s forced lower inventory levels caused by shipping and port processing delays and sky-high freight rates do not hold the same implication. Outbound shipping to customers is also wreaking havoc. USPS, UPS, and FedEx all recently announced peak holiday rate surcharges, and daily demand already exceeds the parcel market’s network capacity by 5 million packages per day.
In addition, our survey shows consumers have decreased loyalty and are both unwilling to pay for shipping and less forgiving of retailers that are out of stock. The pandemic has shifted consumer behavior forever – the me-centric consumer has emerged and is more focused than ever before on convenience and customization. They are shopping more online, although they acknowledge that retailers have been doing a good job with health and safety. In our survey, 42% of customers said they planned to do more holiday shopping online versus last year. In fact, 43% of consumers plan to buy the majority of their holiday goods online (Figure 2).
They are also getting more comfortable using a variety of fulfillment options, especially those in higher income ranges. Almost 60% of consumers earning more than $100,000 said they were likely or very likely to use buy-online-pickup-in-store choices.
So, while there are obvious opportunities for retailers, there is also an obstacle course to navigate. Here is what retailers must focus on:
Prioritize understanding exactly what your customers want: Leverage internal data and external inputs to draw real-time consumer insights. This is the time to flex your organization’s agility muscles. This means all information should flow seamlessly among all teams, giving them the ability to make and change decisions quickly.
Watch inventory at all times: Know exactly where your inventory is located and optimize levels among both stores and distribution centers based on real-time data. Ensure that inventory is in place by the time customers want to shop. It will be helpful to encourage consumers to shop earlier. They are already leaning in this direction, which means that encouragement such as early sales and promotions will be successful.
Make stores your secret weapon: Leverage stores for online fulfillment to reduce shipping costs and increase speed. Encourage your customers to pick up at the store and leverage curbside pickups as much as possible, possibly by temporarily increasing your free shipping threshold. Ensure that stores are set up for this increase of omni fulfillment -- with sufficient inventory levels, backrooms set up for fulfillment, and timely training for store associates.
By most accounts, this is setting up to be a holiday season to remember for retail. While last year the main challenge was the suddenly increased omnichannel reliance, the problems this year for retailers are even more layered and urgent. Disentangling these issues will require deliberate and strategic thinking, and there’s no time to waste.
