DUBAI, UAE — With rising gas prices, food shortages, skyrocketing interest rates and ever-present inflation, consumers are worried and will likely shift their buying behavior. That means retailers are worried, as well.
Despite the fact that the retail industry is facing unprecedented challenges, the stars are aligning to deliver another “unprecedented” holiday season. So, what are the holiday shopping forecasts for this year? And how do brands and retailers keep growing?
In its recent study, Salesforce research company predicted that profitable differentiation would shape holiday shopping.
They stated that, despite these economic headwinds, it is no secret that the industry is growing. In fact, historically, record inflation has been a tailwind in catapulting revenues. However, this period of inflationary pressure is distinct in that the cost of goods is rising faster than what can reasonably be passed on to consumers.
Here are the key factors putting pressure on margins today:
Increasing product costs: The cost of goods is still seeing double-digit spikes globally from a year ago, meaning that inflation will continue to rise. That will push selling prices even higher for the rest of the year.
Increasing first- and last-mile costs: Gas and diesel prices are expected to continue rising, making fulfillment and returns more costly. Some retailers are already charging for online returns to offset some of these costs.
Inventory shortages and overages: Food and raw material shortages are expected to worsen, adding more uncertainty to the tenuous global supply chain. Still, inventory surplus due to overbuying in 2021 has left companies with too much product on hand. They don’t want those big liabilities left on balance sheets.
Declining consumption: Higher prices are driving down consumption. According to Salesforce research, 51 percent of consumers plan to purchase fewer holiday gifts this year.
Consumer fears: Consumers already feel pessimistic about the economy. This means consumers could pull back further on discretionary spending as they anticipate challenging economic conditions ahead.
According to Salesforce these economic challenges put $1.4 trillion in margins at stake for global retailers. However, retailers can still achieve growth and profit if they plan of time.
So here are five holiday shopping predictions to consider when developing the strategy for the upcoming season:
Shoppers will buy earlier to avoid price hikes
According to Salesforce research, 42 percent more shoppers worldwide and 37 percent more in the U.S. plan to start buying gifts earlier – the No. 1 behavioral change this holiday due to inflation. They hope to snag their holiday gifts before prices rise too much.
Loyalty shifts to value
In 2020 and 2021, customer loyalty saw a huge shift to convenience and safety as consumers demanded a frictionless experience – often buying online from home and having the order fulfilled in or from the store. Now, as inflation rises, consumer loyalty is shifting again, but this time to experience and value.
In fact, according to Salesforce research, half of all shoppers will switch brands this holiday due to pricing. This means that 2.5 billion shoppers worldwide could ditch their brand for a lower-priced competitor. Some product categories, including luxury brands, grocery, and department stores, are more susceptible to waning loyalty due to price sensitivity (either high prices or significant increases in prices).
Pricing and discounting strategies will be more crucial than ever to holiday success, as 17 percent of global shoppers are unsure if they will buy any gifts this year.
Physical stores will drive growth across all channels
Last year, stores had a significant impact on digital sales, with store associates expanding their roles to become fulfillment experts, service agents, social influencers, and digital stylists. In fact, 60 percent of digital orders are now influenced by the store – whether demand is generated or fulfilled. This year, with stores fully operational once again, we’ll see consumers gravitate to physical locations in even greater numbers.
There’s real opportunity for retailers with both physical and digital stores to grow faster than digital natives and e-commerce brands. Merging shopping across both digital and physical spaces enhances the value of each channel. Thus, retailers with physical stores will grow online sales at a rate 1.5 times faster than those without.
Shoppers will gravitate toward sustainable options
The cost of doing business is not only becoming more expensive, but also more complicated. Over the last two years, new expectations have increased in importance to consumers: trust and impact. 88 percent percent of consumers now expect brands and retailers to clearly state their values. And shockingly, 64 percent will stop doing business with a company if corporate values don’t align with their own.
This is especially true when it comes to the environment. According to Salesforce research, 83 percent of shoppers will seek out sustainable brands and products this holiday. In fact, after a company’s treatment of customers and employees, its environmental practices are the top factor influencing buying decisions, placing the importance of sustainability initiatives ahead of actions around racial and economic justice.
But while consumers have long claimed they preferred sustainable goods, that didn’t always prove out in their buying behavior. The research suggests that this has shifted, with 42 percent of shoppers saying they will consider paying more for sustainable shipping options or select a longer delivery window.
Retailers will test NFT drops
Every holiday shopping season, a handful of items become the “it” gifts everyone wants to give. This season’s hot collectibles come straight out of the metaverse. In fact, 46 percent of shoppers said they would consider NFTs, a digital asset that represents something unique or scarce stored on a blockchain.
This could be a virtual version of a real item or a digital collectible. Younger shoppers particularly are drawn to “digital twins” — a digital version of a physical good. Gen Z is four times more likely than Gen X to buy a physical good if it is paired with a digital twin this holiday.
Nonetheless, NFT purchases are still in an exploratory phase. And while the market for digital assets is small, expect retailers and brands to test new ideas and capitalize on the buzz this holiday season.
Salesforce predicts that approximately half a million NFTs will be purchased from retailers and brands between November and December, with a potential total market value of $54 million.