Santa might have an easier time getting down the chimney this year—he’ll be schlepping a smaller bag. As Americans adjust their spending habits to a sluggish economy, the holiday retail season is expected to take a big hit. Consumer confidence is down, raising the stakes for retailers to cater to customer demands and deliver the best shopping experiences possible.
The majority of retailers in a recent Aberdeen Group survey listed the high cost of goods as their number-one holiday challenge. Asked to name their top strategic actions to counter the economic downturn, 41 percent said “executing optimized customer-centric promotions.”
Ben Ream, report author and Aberdeen analyst, calls that “a very valid, viable, defensible approach for retailers to take.” But can retailers make up for the chasm in price and interest in buying?
“None of [the retailers] have indicated that they’re going into the holiday season with the axe sharpened and ready to chop employee or staffing levels, but they have indicated that they’re incredibly ready to respond to any drop or deviation in terms of their planned sales on a weekly basis,” Ream says, adding that some retailers—including household names—won’t make it out of the season. Expect some New Year’s bankruptcies.
“This is a make-or-break holiday season for a lot of people,” says Cathy Hotka, principal of retail firm Cathy Hotka and Associates. “The ‘make-or-break’ is not about product—it’s about service. That’s important because it never was about service before. This year these guys are keenly aware that they need to do a great job with connected customers and making that experience terrific.”
Hotka says that shoppers will cut their shopping time—perhaps to avoid unnecessary purchases. They may make fewer trips to the physical stores, but viewing products online before buying is at an all-time high, making multichannel integration and communication more important than ever. With fewer shopping visits, positive experiences will be just as important as cheap prices.
In fact, a recent report by the e-tailing group indicates that 72 percent of consumers plan to research products online prior to purchasing. The survey also reveals that 52 percent of respondents plan to buy fewer holiday gifts this year. Of those shoppers, 49 percent said they plan to make purchases online, but cited the high cost of shipping as the number-one deterrent to completing a transaction.
In-store shopping, however, remains a holiday tradition for many—one that Hotka says won’t necessarily fade away. Success there, she says, will come down to experiences: Brand and store personalities will become increasingly important as consumers limit the number of stores they enter and the time spent in each.
“There are some fantastic shopping experiences out there,” Ream says. “It’s really apparent to any consumer that has [her] eyes open [which] retailers are excelling and which ones aren’t.”
When Aberdeen asked retailers about their preparations for the holiday season, only the best-of-breed stores responded favorably and proclaimed their readiness. “The fact that average and laggard stores are grading themselves harshly—that bodes well for them,” Ream says.
“Retailers plodded along and pursued a push strategy,” he says. “Now we’re entering a whole new area, which is a pull [strategy].” Retailers, he adds, will have to work a lot harder to lure buyers, who will be carrying heavy economic burdens on their shoulders.
Hotka, noting a recent constriction in new-store openings in the retail sector, says this holiday season will be a tale of survival for many. How retailers tackle the tough environment will be apparent with promotions, coupons, increased Web marketing, and in-store deals.
“They are going to pull out every stop,” she says. “To some degree, what we are seeing is pressure for retailers to stay alive. They will do everything they can and pull out every technique in the book.”
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