‘Tis the season to get everything right as retailers pin hopes on the holidays

Retailers have precious little leeway this holiday season and must get everything just right to end this difficult year on a happy note. Inflation-hit consumers are planning to spend less this year, which means holiday splurges may be harder to come by unless retailers deliver exactly what buyers want. According to the annual AlixPartners holiday survey, 30% of consumers plan to spend less this year than in 2021. This translates to just a 4-7% increase in sales year-over-year, and accounting for inflation, means that retailers will likely see a decrease in real sales.

Consumers plan to spend net less in almost every category except toys, with significant declines in jewelry/watches, home, flowers, and accessories.

More than half of surveyed consumers said inflation had impacted affordability compared to last year, and 39% said they planned to make at least half of their holiday purchases on sale or promotion. Consumers cited concerns about inflation, the near future of the economy, and their income stability among top reasons for reduced holiday spending. In response to the ongoing levels of inflation, consumers are also planning to look for more affordable brands, including private label brands.

Two in three consumers think the economy is doing worse than a year ago, and 37% expect it to be worse than today in 2023. More shoppers plan to wait this year to start their holiday shopping: Only 46% said they planned to start before Halloween on October 31, down 7 percentage points from the survey last year.

The biggest area to get things right: e-commerce. Almost 40% of consumers plan to do most of their holiday shopping online. However, the key change is that today’s digitally savvy consumers are demanding that even traditional retailers be ‘websites with stores,’ not ‘stores with websites.’ Only 56% said they would visit a physical store to browse merchandise, down from 57% last year and 80% in 2018. Fewer consumers are planning to try out or experience a product in the store, and interest in asking store employees for advice and recommendations is down significantly as well. Instead, the powerful me-centric consumer is engaging more online, doing research on product attributes, reviews, and pricing before buying it on any channel.

To give these consumers what they’re looking for, retailers must reframe their operating model to be digital-first. This does not mean prioritizing one channel over another. Instead, it’s a shift in mindset that resets how the organization thinks about everything from customer acquisition and customer lifetime value to the relationship between marketing and sales and where the buying team sits and to whom it reports. In practice, this means changing conventional KPIs for every part of the business to digital-first benchmarks.

Consumers have also dropped their pandemic-era tolerance for reduced product or service levels and extra costs. Three in four in our survey said they would not be more forgiving of out-of-stocks or unavailable products at retailers, and 57% of consumers are unwilling to pay more for shipping this year. A fourth said they would shop at a competitor if a store they frequented had permanently closed.

All this is challenging news for retailers, themselves hit with rising costs from inflation, continuing supply chain struggles, and inflated inventories. And in a world where most retailers have yet to crack the code on sustained omnichannel profitability, those hoping to thrive must take a completely new perspective into their operating model—including processes, organization, and technology.

With the margin for error razor thin, what can retailers do?

Put customer insights quickly into action: This is the time to truly understand what your customers want and deliver. Make it easier for every single team to receive real-time consumer data and insights and for information to flow back and forth, giving them the ability to make decisions quickly and test and learn results of any and all tactics.

Ensure tighter inventories: Any retailer struggling with this problem right now knows this is easier said than done. Make it imperative to regularly track inventory, provide real-time visibility to all relevant teams, and drive accountability within the organization. Retailers may need to make short-term decisions that don’t align with typical channel allocation assumptions and create operational flexibility for shifting inventory across channels. And be in close concert with suppliers – giving them timely and accurate information. 

Don’t ignore pricing as a lever: Pricing is a crucial lever because consumers will be weighing price and value more carefully now, which means that pricing and planning teams must be continuously evaluating data and drawing and acting on insights quickly. Detailed revenue and cost analytics must form the backbone of all pricing decision-making.

Worried consumers are not making it easy for retailers this holiday season. But the quarter remains as important as ever, especially with more economic turbulence expected in 2023. Retailers that act with discipline and agility now will be better placed both from a cashflow and operations perspective to start the New Year on a more stable note.