The 2017 holiday season is shaping up to be a promising one. Consumer discretionary spending has been bolstered throughout the year by low unemployment, a growing stock market and a more optimistic consumer. Although aggregate spending trends are pointed in the right direction, that’s not to say that every retailer is sharing in the gains proportionately. In fact, we’ve seen thousands of retail store closings, consumers shifting their spending toward different sectors of the retail economy and the rise of Amazon putting pressure on many retailers’ bottom lines.
Still there is plenty of room for retailers to feel good about their prospects this holiday season – as long as they keep their eyes on the make-or-break trends. Here are five dynamics for retailers that we believe could mean the difference between a strong or weak holiday season:
Maintaining Share on Mobile – During the 2016 holiday season, mobile commerce made up less than 4% of discretionary retail spending but accounted for more than 30% of the season’s growth contribution. If you want to participate in the growing retail sector, you better be keeping up on mobile. Part of the challenge is that gains in mobile are disproportionately flowing towards the largest and most well-known names in retail who manage to get their apps on people’s phones. Amazon is a clear cut above everyone else in this regard. Other retailers must get clever about how they get onto their customers’ phones so they don’t lose mindshare or dollar share during this most important time of year. Whether making more direct marketing appeals to download your app, providing incentives for mobile purchase, or finding ways to integrate with the in-store experience, there are tactics retailers could be using to make a more aggressive push into mobile.
Making Up ‘Free Shipping’ Margin with More Aggressive Pricing – Although it’s clear that pricing power is now in the hands of the consumer due to the transparency provided by the internet, consumers don’t always tend to be perfectly rational beings. With consumer sentiment the highest we’ve measured in years, it’s likely that many shoppers will be somewhat less price sensitive – so long as they feel like they’re getting some sort of deal. Free shipping has come to be expected, and about 60% of shoppers say they’ll abandon their shopping carts if they don’t see free shipping at checkout, but that doesn’t mean retailers can’t win back a little margin with more aggressive pricing. Retailers will need to be cautious on which merchandise this can be done: commodity goods widely available across a lot of sites present a greater risk of comparison shopping, for example. But all else equal to prior years, retailers should have a bit more room to maneuver with pricing in 2017.
Fast and Flexible Fulfillment – American consumers don’t just want free shipping, they also want it fast and flexible. Over the past few years, one of the consistent trends driving the shift to e-commerce has been fast fulfillment, and many retailers have been making big improvements to their fulfillment operations to ensure consumers get their packages within a two-day window. Many consumers also love the flexibility of in-store pickup, and retailers who provide that fulfillment option stand to ‘pick up’ some additional business during the holidays – and that’s an advantage only multi-channel retailers can provide.
Pay a ‘Complement’ for Prized Purchases – This season features a lot of high-profile, hot products that consumers are eager to get their hands on. New iPhones and Pixels might top the list, but accessories are also must-haves for these devices. Retailers who want to win the big sale could benefit from drawing in customers with attractive deals on complementary products like protective cases, extra chargers, ear buds, etc. In the same way that the mere offer of free shipping often gives consumers the impetus to buy, so too can deals like these.
Ride the Emerging ‘Smart Home’ Trend – Beyond this season’s slate of popular smartphones, we are also rapidly watching new categories of ‘smart devices’ emerge. Most notable has been the recent uptick in adoption of ‘smart speakers’ like the Amazon Echo portfolio and Google Home, not to mention the coming Apple HomePod. With smart speakers now being used in 11% of U.S. WiFi-connected homes, it’s clear these devices are beginning to break into the mainstream. And with smart speakers available for a variety of use cases and at many different price-points, this looks like it’s shaping up to be the season of the smart speaker. And while smart speakers are likely to be many households’ first foray into the smart home, we’re also seeing complementary devices like smart thermostats, smart lighting systems, smart doorbells and smart hubs beginning to enter the home. It’s likely that several of these adjacent categories will also begin to grab a real toehold this holiday season. Retailers who capitalize on these trends by carrying the right products and providing expertise for consumers who still need to get educated about implementing a smart home could stand to benefit this season.
2017 is looking like it’s going to be a very strong online holiday season, but success isn’t guaranteed for all. The retailers who outperform will be the ones who get the product mix, promotions and pricing right. Meeting the needs of consumers and marketing to them effectively is the best way to boost that bottom line in a very complex and dynamic retail environment.
For more insights on e-commerce and the holiday shopping season, download the State of the U.S. Online Retail Economy in Q3 2017 presentation today.