November is here and the online holiday shopping season is once again upon us. With consumer confidence picking up and the online channel demonstrating strength throughout 2012, we believe this holiday season is shaping up to be a fairly positive one with year-over-year growth rates in the mid- to high-teens (Comscore’s official forecast will be released in mid-November).
Over the past several years, each holiday season has seen the continuation of many online shopping trends that are not necessarily new but nevertheless shape the dynamics of the season. The holiday shopping period continues to kick off earlier and earlier, Cyber Monday rises in prominence and promotional activity, and free shipping becomes an increasingly essential requirement for online purchase. We expect to see these trends continue in 2012 and reach new heights, as they have in each of the previous few years.
But while some trends are merely evolutionary to the online holiday shopping season, there are other trends we expect to be revolutionary. Though these trends may have existed during last year’s season, we see that the market conditions have changed such that we anticipate a step-change in their impact on the 2012 season dynamics. The four key trends we’ve identified for this year, which we'll discuss during State of Online Retail Q3, are referred to as the 4 S’s: Social Commerce, Smartphones, Showrooming, and Sit-Back Shopping.
1. Social Commerce
Social Commerce is far from being a new phrase in the e-commerce lexicon, but we see the potential for it taking hold in a way that it frankly hasn’t up until now. The notion that product and gift recommendations would fly freely around Facebook and Twitter, causing friends to latch onto these digital word-of-mouth events and make purchases, was probably overstated from the outset. While these events certainly do occur, they just don’t happen at the scale that was originally anticipated. But that doesn’t mean social commerce has been a flop – it really just needed to find the right sweet spot. And it seems we are getting closer to that point…
The reason 2012 will be different for social commerce is the rapid emergence of social media channels more oriented to the shopping experience – most notably Pinterest, but also sites like The Fancy and Svpply. Pinterest had just 3 million U.S. visitors a month heading into the 2011 holiday season, but this year boasts more than 25 million. With so many people pinning the best retail eye-candy out there for their friends to explore, we expect to see Pinterest become a significant driver of online gift idea exploration. Sites like The Fancy and Svpply feature similar eye-candy and have also integrated buying directly into the experience, in addition to enabling users to either “want” or “fancy” the items they covet.
Facebook, which really drives the social sector, is also reportedly testing a “want” button, which could really give a boost to social commerce if it gets rolled out in time for the season. In addition to its recent integration of Karma, the social gifting app acquired earlier in the year, Facebook seems well poised for the impending social commerce wave.
Smartphones aren’t exactly new, but they have entered the mainstream market in a big way over the past year, with 30 million more devices used today than at this point a year ago. The U.S. mobile market recently reached 50% smartphone penetration and for consumers that have not already jumped into the smartphone market it is likely only a matter of time. There is greater affordability of smartphones at the lower end of the market (with many devices being offered for free with the purchase of a cell phone contract) and amped up interest at the upper end of the market, which should help propel it to even new heights. What’s truly different about this year than previous years is that the vast majority of consumers now find themselves in-market for a smartphone, whether they’re a first-time buyer or just ready to upgrade to the latest and greatest.
At the upper end, devices like the iPhone 5 and Samsung Galaxy S3 have been an immediate hit and are flying off the shelves. Incredibly, Comscore observed that the iPhone 5 generated as many online sales in its first 3 days as the iPhone 4S did in its first month! But it’s not just the ferocity with which the latest and greatest devices are finding their way into consumers’ hands, it’s that it has also spawned its own accessories echo boom. Whether you’re in the market for phone cases, connecting cords, speakers, or digital content downloads, there are a variety of available gifts and stocking stuffers at most price points that make for popular gifts. We can expect to see that smartphones and related accessories will drive a significant percentage of holiday gift-giving this year.
With more smartphones in the hands of consumers, behaviors like ‘ showrooming’ – examining merchandise in-store and then purchasing online – will continue to increase at the expense of traditional brick-and-mortar retail. Interestingly, Americans by and large still don’t even know what the term ‘showrooming’ means… but they sure have learned the behavior. In our recent e-commerce survey, we asked consumers about their familiarity with the term and only 16% said they had heard of it. When we prompted them with the definition, however, fully 37% said they had engaged in the behavior.
The driver is not just that smartphone penetration is has reached 50%, but that newer smartphone owners have now learned to integrate these behaviors into their everyday experiences. Price-checking via smartphone is now a way of life for many in-store shoppers, and they are particularly savvy to its utility in certain product categories such as Consumer Electronics.
At the same time, brick-and-mortar retailers are fighting back with new strategies aimed at combating the showrooming phenomenon. Best Buy recently announced it would match competitors’ online pricing. Toys R’ Us said that it would focus on offering in-store product exclusives, ostensibly to bring customers into the store and combat the ability for showrooming to occur. While these strategies may come at some cost to margins, they should slow the loss of market share to online.
4. Sit-Back Shopping
Another major media shift in the last 12 months is that tablets have evolved from being high-priced luxury goods to mainstream devices with the introduction of several more affordable tablets, led by the $199 Amazon Kindle Fire, during the 2011 holiday season. With tablets now in the hands of more than 40 million Americans, new behaviors are beginning to emerge in terms of how and when people access content.
Many of these new consumption occasions are incremental to existing media usage, particularly during travel and in the evenings at home, whether curled up on the couch or in bed. Shopping, interestingly, is one of the most popular activities on tablets, with Apparel & Accessories shopping performing particularly well in this environment. Perhaps the fact that tablet usage tends to occur when people are in a more relaxed state of mind leads to more online shopping, which is why we see this emerging behavior of Sit-Back Shopping representing a potential boon to retailers this season.
Winners & Losers for Holiday 2012?
The net effect of these four key trends for the 2012 holiday season is that as these new dynamics take hold we will see different winners and losers emerge. The shift to mobile devices, and particularly the reliance on apps, favors the large and established online retail brands like Amazon, eBay and Walmart. And of course we cannot forget Apple, with not only the hottest smartphone in the market with the iPhone 5, but also the popular iPad and promising new iPad Mini. These and other tablets may also provide a relative boost to product categories that perform well on that medium, such as Apparel & Accessories and Digital Content & Downloads (and specifically e-books).
Meanwhile, those facing the greatest headwinds will continue to be traditional brick-and-mortar retailers in the face of competitive pressure from e-commerce (assuming they are not keeping pace with the platform shift). However, they finally appear poised to defend their turf and are becoming more creative with their strategies.
But we should also remember that the holiday season isn’t just zero-sum game for the retail sector. While it will always be a very competitive arena, the wind just may be at the industry’s back this season with a slowly improving job market and consumer confidence on the rise.
Let’s hope this ends up being a Merry Christmas season for all.