Gartner today announced that, due to concerns surrounding inflation and cost-of-living pressures, 28 percent of consumers are planning to spend less this holiday season. Only 10 percent plan to spend more than previous years, of which the vast majority note that it is a result of brands raising prices due to inflation.
According to Gartner’s survey, nearly half (48 percent) of consumers plan to start their holiday shopping in October or November, with 16 percent of consumers now shopping year-round for holiday gifts. With inflation remaining top of mind for shoppers, price (65 percent of respondents), value (53 percent) and free shipping (51 percent) were the top three identified factors amongst consumers for their gift decision making this season.
Furthermore, over 75 percent of holiday shoppers expect to see fewer, or the same amount, of discounts as last year’s holiday season. Consumers will overwhelmingly shop online during the 2022 holiday season, with 21 percent planning to shop online more than in store this year compared to 2021.
Tony Preedy, managing director of Fruugo, comments on the strategies that online retailers can adopt to mitigate the impact of potential reduced consumer spending and inflation pressures this holiday season:
“In today’s market, consumers are of course under huge financial pressures, and it’s no surprise that so many are aiming to spread or reduce the costs of their holiday shopping. However, the cost-of-living crisis and inflation pressures hugely impact retailers too.
“Ultimately, businesses are going to have to make trade-offs between profit now and growth later so it’s important for them to analyse their data closely. Inevitably, rising costs are likely to cause retailers to put up their prices in the short to medium term. Digital retailers can be highly agile in how they price to optimise how they sell through their inventory, and they can also be cute about how they target discounts to prompt a purchase. However, indiscriminate use of discounting to drive volume is likely to be ruinous: very few businesses properly calculate the impact on gross margin of reduced prices and the massive growth in units required to keep income stable, never mind growing. With this in mind, retailers are likely to have to opt-out of Black Friday suicide.
“To overcome this period of high inflation and reduced holiday spending, many retailers will consider cutting marketing spend. This will provide short-term profit and loss (P&L) gain, but it will also bring with it significant medium-term pain. While brick-and-mortar retailers can, to an extent, rely on passing footfall for business, online-only retailers need to work hard to generate their traffic. They are therefore particularly sensitive to changes in marketing spend. Overall, sales volumes for any brand are a function of its mental and physical availability – being present really matters, so reducing marketing spend is one strategy that organisations should try to avoid.
“Another consideration is that many home shopping businesses have relatively high fixed costs which makes them highly sensitive to economies of scale; relatively small changes in volumes can have very large bottom-line impact in either direction. Leveraging assets – such as existing infrastructure and inventory – by altering marketing strategies to expand reach to a global scale can be a highly effective defence against falling local demand.
“Basically, to sell more, businesses will need to grow the audience looking at their products by selling to international customers as well as local ones. By marketing their products at full price via cross-border marketplaces, retailers can connect with customers around the world at zero risk to themselves and generate incremental sales at full margin that avoids the need to sell those units at a discount in their domestic market.”