School’s out and temperatures are heating up. So is the economy. With rising petrol prices, food shortages, skyrocketing interest rates and ever-present inflation, consumers are worried - and it’s this worry that will likely shift their buying behaviour. And that means retailers are worried, too. In the face of uniquely challenging factors, the stars are aligning to deliver another “unprecedented” holiday season for the retail industry. How will Salesforce’s 2022 holiday shopping predictions shake out?
As we look beyond the pandemic, we’re seeing online shopping demand level off, with consumers finding a new balance between digital and physical channels. We’ve already predicted that the modest growth of the 2021 holiday shopping season could foreshadow this year, with our first-quarter data showing a 3% year-over-year decrease in global digital sales.
But, given the significant surge of the last two years, there’s no cause for alarm relative to the health of online shopping.
We also can’t ignore inflationary pressures. In the first quarter, the average selling price (ASP) increased by 11% - and shoppers placed 12% fewer orders worldwide compared to the same period in 2021. An early peek at second-quarter data indicates this trend is accelerating, with April and May showing a 7% increase in ASP on top of a 17% increase during the same period in 2021. This scenario sets up a battle across all sectors of the economy for brands looking to tap into consumer wallets as they shop for fewer items at fewer retailers.
Despite these economic headwinds, it’s no secret that the industry is seeing continued growth. In fact, record inflation has historically been a tailwind in catapulting revenues. But this era of inflationary pressure is unique because the cost of goods is rising faster than what can be reasonably passed on to consumers. In 2022, the trillion-dollar question is how do brands and retailers maintain growth, but do it profitably with an omnichannel approach?
Here are the key factors putting pressure on margins today:
We estimate that these economic challenges put £1.2 trillion in margins at stake for global retailers. But retailers can still achieve growth and profit if they plan early. Here are our five holiday shopping predictions to consider as you develop your strategy for the season:
While shopping sprees leading up to Black Friday happened before 2020, more and more shoppers bought in early November over the last two years due to inventory and supply chain issues. But this year, the main motivating factor driving early purchases will be inflation. According to Salesforce research, 42% more shoppers worldwide plan to start buying gifts earlier – the No. 1 behavioural change this holiday due to inflation. They hope to snag their holiday gifts before prices rise too much.
While we predict that the ASP (average selling price) will increase monthly between 8% and 12% for the remainder of 2022, there is a silver lining for holiday shoppers: the return of discounting.
The inventory crisis of 2021 drove retail buyers to purchase too much in certain categories. Now that this 2021 inventory has finally reached warehouses, retailers have a new inventory problem: too much product, many in the wrong categories.
Now, to increase inventory turn and remove excess stock from their balance sheets, retailers will likely launch a highly promotional season starting in late summer. In fact, Amazon’s Prime Days on July 12-13 could be the official start to this year’s holiday promotional calendar. But don’t fret – a rising tide lifts all ships: the annual Prime Day event is the perfect time to launch your own campaign in the dog days of summer. Retailers other than Amazon historically see growth nearly double during Prime Day compared to the periods just before and after the event as shoppers get a jump on holiday shopping.
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 — 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% of global shoppers (850 million) are unsure if they will buy any gifts this year. How can your business compete in an economy with an increasingly price-conscious shopper? Try these tactics to help capture your share of holiday revenue:
Last year, stores had a significant impact on digital sales, with store associates expanding their roles to become fulfilment experts, service agents, social influencers, and digital stylists. In fact, 60% 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. We predict that retailers with physical stores will grow online sales at a rate 1.5 times faster than those without.
While there is an upside for those with brick-and-mortar locations, there also are potential operational challenges as well:
The cost of doing business is not only becoming more expensive, it’s also becoming more complicated. Over the last two years, new expectations have increased in importance to consumers – trust and impact. We’ve found that 88% percent of consumers now expect brands and retailers to clearly state their values. And shockingly, 64% 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% 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.
42% of shoppers saying they will consider paying more for sustainable shipping options or select a longer delivery window.
But while consumers have long claimed they preferred sustainable goods, that didn’t always prove out in their buying behaviour. Our latest research suggests that this has shifted, with 42% of shoppers saying they will consider paying more for sustainable shipping options or select a longer delivery window. How else can you attract the environmentally savvy shopper in an era of price sensitivity? The answer is two-fold:
Consumers expect brands to be honest about their carbon footprint, so be prepared to account for your emissions. We are still in the early innings, though, so don’t despair. Today, 81 of the Digital Commerce 360 top 100 online global retailers publicly report sustainability initiatives regularly. However, based on our analysis, only 23% will promote sustainable practices – in shipping options, on the homepage, or within the product detail page – this holiday season.
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% of shoppers said they would consider purchasing non-fungible tokens (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 capitalise on the buzz this holiday season. Based on our estimates, we predict that approximately half a million NFTs will be purchased from retailers and brands between November and December, with a potential total market value of £44 million. While we are a bit measured on the seasonal impact of NFTs, some shoppers will seize what they see as unique opportunities:
For retailers, 2022 is about playing the long game. Economic challenges and shifting consumer preferences mean that leading with a data-driven strategy will be critical to reacting to conditions in real time. And while we can’t stop inflation, we can recession-proof our businesses by improving profitability and solving for operational inefficiencies.