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Tuesday, October 20, 2020

Holiday Shopping Will Be Different This Year — But The Discounts Will Be The Same

Almost every forecast out there has come to the same knee-jerk conclusion: this holiday shopping season’s sales are going to be catastrophically different. Despite the general doom and gloom, and perhaps ironically, this year’s unorthodox holiday shopping season is going to be roughly the same in terms of discounting practices — but across a longer period of time.   

This key period for the U.S. economy and retailers is surprisingly expected to grow between 1% and 1.5%, with upwards of $1.2 trillion in holiday spending, according to Deloitte. In fact, Marshal Cohen, the chief retail advisor at market research firm NPD Group, told CBS News that he expected sales to grow between 2.5% and 3.2% during the extended holiday season set to last from October and until mid-January. In a release, Cohen also stated, “We’ve already seen this happen over the recent Mother’s and Father’s Day holidays [in 2020], where popular general merchandise categories saw sales lift for the week that was two and three times what it was in 2019…Couple stay-at-home orders with the increased acceptance of e-commerce and the result will be the most competitive and digitally-dominant holiday season we’ve seen.”   

Outwardly, this is surprising. With millions of Americans continuing to lose their jobs, retailers like Century 21, Lord & Taylor and J. Crew going bust, and COVID-19 wiping out regular in-store shopping, all signs point to the retail-pocalypse foretold by the headlines. 

Granted, lower-wage workers and those with heavily reduced working hours will undoubtedly gift less, meaning their outlook is a slower recovery with necessary end-of-year spending cuts. But a poll conducted by Morning Consult found that only 20% of shoppers in general are explicitly worried about their finances this holiday season, and that, as of August 2020, 67% cut back earlier spending in order to reserve funds to maintain quote-unquote “normal” holiday shopping. 

What do these mixed messages mean for retailers? Retailers need to plan for the worst and hope for the best. That means investing in scalable ecommerce capabilities and digital marketing technologies, along with leveraging any stores for click-and-collect and drive-up shopping. It means focusing on assortment and customer experience and getting smarter on “break in case of emergency” discounting strategies.

The stakes are higher than ever, with a prolonged holiday shopping season. However, that may be a good thing for retailers, whose digital businesses have cracked under the crushing traffic and shopping demand normally concentrated in just a few days. Spreading the peaks out over more time will have a great benefit to ensure systems stay up and running and don’t get overly stressed during sharp spikes as in past years. 

However, a longer holiday period means that this will be the first holiday period in a long time where retailers need to prepare for a marathon, not the sprint they are used to. One area that is particularly troubling for finance chiefs is the amount of discounting that will be required to sustain over a longer shopping period. If retailers discount and coupon the way they are used to this time of year, they’ll be eroding margin over months instead of weeks. When you combine deep and uniform discounting along with a prolonged shopping time frame, it seems like a recipe for disaster for retailers already on the financial precipice. Running this marathon requires retailers to discount smarter than they’ve ever done in the past. Some are capable of such a pivot, most are not. 

A robust top-line macro sales forecast doesn’t take into account how much discounting will be required. Therefore the concern may be less on top-line sales, but more on profitability and sustainability – the one-size-fits all discounting strategies will be over 75 days or so. So how do retailers pace themselves and prepare for this promotional marathon? There are three viable options, none of which include deep discounting throughout the holiday period – nobody can afford that.

First, a retailer can choose to hold back discounts and coupons until later in the holiday period once early signals provide clarity on how well they are doing and whether they need to pull the trigger to juice sales – This is unrealistic and hopeful thinking as retailers won’t have the fortitude to wait very long if there are any early signs of danger.

Second, a retailer can choose to front-load discounts and coupons to get out ahead and capture share of wallet early among customers in hope they can taper off later in the shopping period – this is unrealistic and will most likely lead to depleted promotional budgets too early in the season leaving no dry powder for later in the season to capture late-cycle shoppers. 

The third option is to execute an AI-based discounting strategy that ensures a constant stream of discounts and coupons to the right customers throughout the holiday period. Running the marathon requires retailers not to carpet bomb the marketplace, either out of the gate or later on. Quite the opposite, retailers need to ensure a constant, measured, and intelligent discounting strategy to ensure they are targeting discounts to customers who need them whenever they are ready to shop throughout the season. Only with a targeted discount strategy will retailers be able to run the marathon and ensure they don’t burn through their promotional budgets too early or too late with minimal results to show for it. So how can this be done? 

The fortunate retailers that have survived and thrived in 2020 have been in the enviable position with investments in digital transformation and technology throughout the year. Those retailers have an opportunity to leverage those capabilities to execute smarter and more targeted discounting strategies. Without the foundational elements already in place, the retailer will have to choose from the first two options mentioned above and hope for the best. 

Nevertheless, retailers who are enabled with these digital technologies and AI capabilities may still choose to do the lazy thing and flood customers with the same uniform discounts as in year’s past. Retailers without the capabilities unfortunately don’t really have a choice. For those that have the capabilities and have the will to innovate and experiment with personalized discounts, this will be the holiday season they crush the competition. 

The retailers who have done the advanced planning and have made the proactive investments in e-commerce and other digital technologies, such as offer management and AI,  will play a leading role in exceeding analyst sales estimates. Companies that have made those investments to actually innovate around targeted, smarter discounting will finish the marathon in a winning position. 

Regardless, research shows most Americans still plan to celebrate major holiday events this year and next year. How and where they choose to spend will certainly be different. Consumer behavior will be different this year, so there is no precedent. In an uncertain environment, retailers who are nimble, smart and innovate to capitalize on this uncertain consumer behavior will win the holidays.

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