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Ever since the initial NRF report of an 11% decline in retail buying over the four day Thanksgiving weekend, a doom-and-gloom narrative has overtaken a retail season that had many folks optimistic about the chances of a significant rebound due to improving macroeconomic indicators. As a result of the NRF report, some analysts have suggested that many consumers don’t feel that they’ve recovered yet from the recession and are still searching for a new equilibrium, a fairly pessimistic view in light of improving consumer sentiment, robust job growth, a frothy stock market, and low gas prices all pointing towards improved spending conditions.
The accuracy of the NRF survey notwithstanding, it is worth getting some additional perspective about what’s happening this year and why mobile shopping and buying is the key to understanding it all.
The Real Story of What Happened at Brick-and-Mortar Over Thanksgiving WeekendFirst, let’s start by examining what actually happened on Thanksgiving and Black Friday at brick-and-mortar. We believe that ShopperTrak data provide a very good read for brick-and-mortar because it is based on behavioral traffic data and actual retailer sales numbers, and their numbers suggested that while traffic was up 27% on Thanksgiving Day, a 6% decline on Black Friday led to a net decline in sales of 0.5% for those two days.
One possible theory for such a decline is that by opening on Thanksgiving Day, retailers might actually be bringing Black Friday shoppers out to the stores a day early – but only for a limited window of shopping and with fewer stores open and available for shopping. But once in stores on Thanksgiving, many of those shoppers fail to return to the stores on Black Friday, having already gone for their doorbusters. As a result, retailers are in essence getting $1 today (Thanksgiving) but sacrificing $2 tomorrow (Black Friday). The Pandora’s Box of opening doors on Thanksgiving has created a Prisoner’s Dilemma for retailers resulting in a sub-optimal outcome than if they had all just stayed closed on Thanksgiving.
The diagram below illustrates the hypothetical payoffs in this game theory scenario for two retailers deciding whether or not to open on Thanksgiving. The outcome would be better for both (+3) if they both stay closed, but because they are afraid of the results of staying closed while their competitor opens, they both choose to open and end up at a sub-optimal outcome (+2).
If we accept this interpretation of what actually happened, then it’s wrong to conclude that there is a problem with the spending psyche of the American consumer. In actuality, the soft spending at brick-and-mortar reflects a change in shopping behavior – both in terms of when people are shopping in store and also how they are actually converting their purchases.
Holiday Retail Spending Actually Isn’t Cratering – It’s Just Shifting to OnlineEven if ShopperTrak’s more optimistic read of Thanksgiving and Black Friday traffic and sales still indicates softness in buying behavior in-store, what if total retail spending – when accounting for e-commerce and m-commerce – painted a totally different picture? Well, that might be exactly what’s going on.
Comscore reported exceptionally strong desktop e-commerce growth rates on Thanksgiving (+32% vs. year ago to $1.01 billion) and Black Friday (+26% vs. year ago to $1.51 billion). On top of that, we recently compiled our mobile spending figures for those days (plus Cyber Monday) and found that m-commerce accounted for more than 20% of total online spending on each of those days.
Across the board on the key shopping days, Comscore observed particular strength in both e-commerce and m-commerce buying. When factoring overall digital commerce growth rates of 30%+ in a channel that will account for approximately 14% of discretionary retail spending this Thanksgiving holiday season translates to an overall percentage increase of 4-5 percentage points at total retail.
Said another way, rather than a 0.5% decline for Thanksgiving and Black Friday, we may have actually seen a 4% increase when factoring in digital commerce. Paints quite a different picture, doesn’t it?
Mobile is the Key to Understanding the What and the Why of Holiday ShoppingSo there is plenty of reason to feel better about the start to the holiday season, but it is also worth pausing to consider why these changes in shopping behavior are occurring. The reality is that mobile devices are rapidly changing the way consumers shop and transact.
44% of smartphone owners say they have engaged in showrooming behavior, where they enter a brick-and-mortar store and “touch and feel” a product only to eventually transact online. As smartphones equip consumers with information on products and allow then to easily find the lowest price, it is increasingly likely that the consumer ends up completing their purchase someplace other than at the register in-store. This escalation in showrooming behavior was ultimately a significant driver behind the pronounced channel shift to online, with huge year-over-year growth rates on Thanksgiving and Black Friday.
Showrooming not only pulled dollars over to desktop e-commerce during the Thanksgiving holiday weekend, but it obviously also translated into a higher percentage of m-commerce sales than normal (Q3 saw a much lower 11% of total e-commerce dollars come from mobile). Consumers are clearly becoming more comfortable with transacting over their mobile devices, particularly during the concentrated periods of shopping that occur during the holidays.
It looks as though 2014 may eventually go down as the year that mobile transformed holiday shopping. And while this change will require retailers to adapt, they can take some comfort in knowing that holiday sales aren’t cratering and that it should be a Merry Christmas for them after all.