For consumers, the holiday season means enjoying gifts, family traditions and festive celebrations. But for retail businesses, it’s the most critical time of the year.
We see an emerging storm of economic conditions — inflation, inventory and supply chain issues, and an extended holiday season — as companies struggle to determine the right e-commerce strategy for the holiday season. Retail e-commerce channels such as Amazon, Walmart and Instacart, where a majority of all e-commerce takes place, will be the real battlefront for the holiday season. The key to success this year will be flexibility, responsiveness and endurance: businesses will need to be ready to respond to the market and consumers all season long.
After two years of e-commerce benefiting from a pandemic tailwind, consumers are now living with inflation and an unofficial recession, and we can expect more selective and price-conscious shopping behaviour. While prices in major retail e-commerce markets such as Amazon, Walmart and Target have largely kept pace with inflation, consumers are feeling the pressure on their daily essential purchases.
According to TradeIQ data based on thousands of products at more than 450 online retailers, supermarkets and home and kitchen prices have risen on average by about 20% in the past year, much faster than inflation. The average shopper needs to spend more of their budget on essentials, reducing their spending on gifts and other discretionary purchases.
Place as many stock orders as possible as early as possible so that you have stock before the holiday season begins.
However, unemployment has remained low so far and consumer spending has been resilient, which we can see in the continued strength of online shopping. For example, in the second quarter of 2022, e-commerce growth has already recovered to 9% at Target, 12% at Walmart and 10% at Amazon in North America.
On top of this shift in value, the Christmas shopping season kicks off earlier this year, spurred by the second Amazon Prime Day in October. Other retailers will follow suit in an effort to capture spending by budget-conscious consumers as they plan ahead for the holiday season.
What does this mean for brands? The focus must be on endurance and companies must be ready to change their strategy for discounts, inventory planning, and ad and marketing spend as the environment changes, while warding off potential consumer fatigue.
Increase discounts while balancing profitability
Discounts have faded into the background in recent years, thanks in large part to consumer lockdown cuts and consumer stimulus checks, but that will change this year. Promotions and discounts have surged throughout 2022, and Amazon Prime Day was a good indicator of what could be coming during the holiday season. According to data from CommerceIQ, during Prime Day 2022, discount levels for sale items increased by 10% to 12% compared to Prime Day 2021. The trend is likely to continue at other major retailers as we head into the holiday season.
While businesses and retailers aim to increase promotions and discounts throughout the season, most promotions will still take place during specific sales such as Black Friday and Cyber Monday rather than throughout the season as consumers wait for the best deals.
There is an opportunity to further organize promotional events like Cyber Week to generate more volume, but wrong discount level can lead to big profits. Companies entering the season with excess inventory could face a perfect storm that eats away at profits.
Here are some principles businesses should keep in mind when planning ecommerce promotional strategies for the holiday season: