Episode Transcript:
Sarah Lebow: Partner with Emarketer on data-driven marketing materials. Our custom reports give Emarketer media solutions clients the opportunity to generate new category insights through original surveys and analysis. Visit emarketer.com/advertise to learn more.
Hello listeners. Today is Wednesday, September 4th. Welcome to Behind the Numbers: Reimagining Retail, an Emarketer podcast. This is the show where we talk about how retail collides with every part of our lives. [00:00:30] I'm your host, Sarah Lebow. Today's episode topic is the holidays, believe it or not. Joining me for today's episode, we have principal analyst Sky Canaves. Sky, have you started your holiday shopping yet?
Sky Canaves: Not the end of year holidays, but I am doing some Halloween shopping now.
Sarah Lebow: Also joining us is senior analyst Zak Stambor. Zak, have you started your holiday shopping yet?
Zak Stambor: Oh God, no. I am a last minute shopper so I am not [00:01:00] even beginning to think about Halloween shopping, let alone holiday shopping.
Sarah Lebow: I'm with you Zach. Okay. It is September, which means we're a month away from Q4, which is the unofficial start to the holiday season. We're projecting a holiday season of $1.35 trillion in US retail sales. That's up nearly 5% over last year. Sky, you wrote our holiday shopping report. What stood out to you on our holiday forecast for this year?
Sky Canaves: I think [00:01:30] a big one is that stores are poised to do really well this year, or at least better than last year. We had a few very unusual years in 2021 and 2022 when stores really rebounded from the big dip in 2020 but, compared to the pre-pandemic period, we're expecting to see pretty healthy store sales growth of 3.7%, and that will just highlight how important it is for retailers, even as they invest in online and reaching consumers digitally, to prioritize [00:02:00] the store experience and the customer service and what they can offer. Especially this year, because there's a very unusual holiday calendar with both fewer days between Thanksgiving and Christmas than in just about every other year. And an election year that is going to throw a bit of a curveball into things.
Sarah Lebow: Yeah. That tighter holiday season, it's going to I think make a lot of shoppers be more in Zak and my camp, where they [00:02:30] suddenly realize that the holidays are quickly approaching and need to go into the stores. Can't wait for shipping. Zak, you wrote about how our holiday forecast isn't exactly in line with some other holiday forecasts. I feel like this is pretty normal. Holiday forecasts tend to be all over the place. But what factors are at play here?
Zak Stambor: While forecasts tend to span a spectrum, this spectrum is very broad. Broader than usual. And I think it points to the [00:03:00] uncertainty ahead. While our forecast is pretty bullish at 4.8%, and there's lots of good reason for that bullishness. Consumers have been spending throughout the past year, even if they've focused on essentials. There's easing inflation. We'll see a rate cut, if not two, in the months ahead. There's a lot of stuff that we just don't know how it's going to shake out, including the election. And [00:03:30] so, as a result, forecasts range from 2% to 2.5%. There was another one at 3.5% and another one at 4%.
And so that's somewhat in line with how retailers are talking recently about the rest of the year. A slew of retailers, everyone from, I think, Target to Abercrombie to Nordstrom have all talked about the uncertainty ahead. And it's an odd [00:04:00] outlook ahead because there's so much that we just don't quite know how it'll shake out.
Sky Canaves: But at the end of the day consumers will spend the money that they have, and that tends to drive spending the most, even as we see a lot of ups and downs in consumer confidence readings. And lately they've been ticking upwards again. But as far as where we are in terms of the economy, job growth has slowed and unemployment is up but it's not drastically up. As long as the job market [00:04:30] holds up through the end of the year, which I think we can fairly expect it to. Hopefully there won't be any big layoffs right before the holidays. But as long as that holds up, consumers will keep spending.
And I think it's also important to look at the categories where retail spending is taking place. They're going to tend to be the smaller ticket items. Food and beverage is poised to be the strongest growth, and especially since the costs of dining out have seemingly skyrocketed. So people will turn to entertaining [00:05:00] more at home. They'll still spend spend more on affordable luxuries like clothing, beauty products. Even consumer electronics are poised for a bit of a comeback as we're nearing the start of replenishment cycles. Goods that were purchased during the pandemic in 2020, that's already four plus years ago so people need to replace those goods. So we're seeing more strength in those categories than in the big ticket ones for the holidays.
Sarah Lebow: [00:05:30] The big ticket ones like?
Sky Canaves: Luxury is a big one. Luxury is struggling. Home furnishings, that industry is still going to take a while to come back. DIY home improvement is still being put off. So these types of categories, these big splurges. The appliances, maybe larger TVs, and things like that.
Sarah Lebow: You mentioned people will spend the money they have. They also maybe will spend the money they don't have if we get a rate cut [00:06:00] because they'll be interested in putting things on credit or indulging in buy now, pay later.
Sky Canaves: Right. And buy now, pay later is still very strong in the holidays. I think we will see that it was strong during the back-to-school period as well, as shoppers look to spread out their expenditures and make their budgets go a little further, and manage their budgets a little more in the ways that they can.
Zak Stambor: And at the same point, I think the rate cuts will really provide some fuel for consumer confidence, which has been really [00:06:30] low in terms of historical standards for quite some time. And that's largely the result of inflation. And even though the rate cuts probably won't move the needle that much for consumers' everyday life, it will signal to people that we have turned a corner, that the worst of the economic uncertainty is behind us and things are looking better ahead, which should drive consumers to spend.
Sarah Lebow: Yeah. The election will [00:07:00] definitely play a role in that as well. You'll get people who are happy with the outcome who are spending. You'll get people who are unhappy with the outcome who are spending. There's also this factor I feel like we haven't talked about of the ads you're seeing surrounding the election impact how you feel about the economy. If you're seeing ads about how the economy is struggling, whether or not it is struggling, you're going to feel like it's struggling going into the holiday season.
Zak Stambor: I think that's very true. I also think the [00:07:30] election... part of the uncertainty ahead is the election and what falls out post-election. That's where we don't quite know if on Election Day were just done and over or if the days and weeks after the election are contentious and we have some turmoil that leads people to not focus on spending.
Sarah Lebow: Yeah. Maybe I'll eat my words but I feel the days of knowing the election [00:08:00] outcome night of may be behind us. Okay, so that's sort of a holiday hot take. You guys shared a few more holiday hot takes with me before this. Sky, can you go into detail about yours?
Sky Canaves: I think one that we'll see is increasing competition on the low-cost side, and that's really been driven by the e-commerce players with ties to China. Temu is a big one, but now we also have TikTok Shop and SHEIN as well. And they've [00:08:30] really forced some of the major retailers in the US to pay attention to what they're doing and try to respond. So one of the big things I'm keeping an eye on this holiday season is Amazon's reportedly planning to launch a new low-cost section on its platform that will feature goods shipped directly from China at a lower cost.
The shipping won't be Prime speed, so it's not going to be something people use for their last minute holiday shopping. [00:09:00] It could be on the order of seven to 14 days, as Temu shipping is. And then Walmart is also looking to reach more Chinese sellers by offering fulfillment services and shipments from China, and so we're seeing a lot of competition in the low-cost space. I expect Temu, TikTok Shop, SHEIN will all really ramp up their holiday marketing and spending to reach consumers with lots of discounts and deals and promotions. So the impact that that's going to have on [00:09:30] the market is, I think, pretty significant.
Sarah Lebow: Yeah. We're seeing companies like Amazon and Walmart that we previously didn't really think could be undercut getting undercut by these players. Zak, your holiday hot take kind of had to do with these discounts.
Zak Stambor: Yeah. The holiday season is always about promotions, but I think this will be a very, very highly-promotional holiday season, and that's both due [00:10:00] to consumers' growing focus on value and deals as well as the shortened calendar that we have between Thanksgiving and Christmas, which will probably result in some retailers looking at their inventory levels saying, "Uh-oh, we've got too much stuff. We've got to move it." And just leaning into promotions to get that inventory out the door and convince consumers to spend.
Sarah Lebow: And convince them to buy in places that aren't SHEIN, Temu TikTok [00:10:30] Shop.
Zak Stambor: Absolutely. Yeah, you have to capture consumers' attention. Amazon and Walmart and Target are going to capture a whole lot of sales, as are SHEIN and Temu and TikTok. And so you got to lean into something to capture that attention, and promotions and discounts are a good way to do that.
Sky Canaves: And they're going to start early again this year. Amazon has already announced that it's going to have a Prime member sale in October, and that [00:11:00] usually pushes Walmart and Target and others to launch sales around the same time. So we see the initial wave of holiday shopping that starts in October, and then we can expect a lull until after the election, and things will really ramp up around the cyber week and Thanksgiving. I think a lot of consumers will still wait for end of November to really start shopping because they know that's when the best deals come out, and they're going to hold out until then or even [00:11:30] later to get them.
Sarah Lebow: Yeah. In the US this is our first TikTok Shop holiday season. I think that, as a result of both these Chinese sellers' impact and this promo calendar, that we're going to see a ton of user-generated content, or UGC. I'm already seeing on TikTok Shop so many creators posting content with affiliate links, and creators that don't have a big following posting content with affiliate links. It feels like everyone is trying to get people [00:12:00] to buy on TikTok Shop so that they can get a portion of that discount pie.
I feel like we're going to keep seeing that. And I've seen this really interesting strategy where people will post, like, "Now this item is less than the cost of a pizza." That's that value messaging on a more micro scale, even though the cost of a pizza is kind of steep so that doesn't necessarily mean anything. But I think we're going to see a ton of UGC this holiday season.
Sky Canaves: Right. And TikTok is really encouraging that, [00:12:30] making it easy for creators who don't have large followings to participate in TikTok Shop and make money from it. And they encourage the brands to give high commissions to those sellers to keep this rolling. And they will promote those sellers who are selling on TikTok Shop because they will... that's why you're seeing it in your feed, because they have a very strong interest in getting that content out there, pushing it out there so that the participating brands and creators can reap [00:13:00] the rewards of it.
Sarah Lebow: Yeah. Creators are definitely incentivized by the algorithm to team up with brands. That all feeds into a trend that you, Sky, identified in your report, which is the rise of mobile commerce. You wrote that last year we reached the tipping point for mobile commerce, meaning mobile made up more than half of holiday e-commerce. And that trend will continue even more this year. This feels like it's related to this whole UGC, [00:13:30] Amazon, SHEIN, TikTok cheaper app-based goods push to me.
Sky Canaves: Sure. And it also reflects how people tend to shop and look for products during the holiday, especially during Thanksgiving week. They're at home, they're in front of their TVs, they're seeing ads on TV, especially now with CTV. And they might be getting influenced or inspired to look for things to buy, or start working on their holiday shopping lists. And when they go to stores, they [00:14:00] might be looking at their mobile phones to see what prices are like online and comparison shop. Or if things are out of stock in the store, they might be able to buy it and get it shipped to their home.
So there's a lot of cross-shopping taking place but the mobile phone is really the connective tissue for that. And then we also see the big players in e-commerce like Amazon, Walmart, Target are all investing heavily in their apps to keep consumers in there, to get more data about consumers, [00:14:30] and also boost their loyalty and membership programs.
Sarah Lebow: I've heard Target say something like 75% of in-store shoppers are also looking at either their app or the website, and that feels reflected in our own data, where this holiday season we'll see a 9.5 increase in e-commerce or online sales. And m-commerce specifically will be even faster than that, with a 13.5% increase. Even with mobile commerce growing so fast, stores are still [00:15:00] the lion's share of holiday sales, and that's not changing this year. Stores are going to have a strong year this year. Sky, what did you see in your research?
Sky Canaves: Well, we expect this year e-commerce will reach a new peak of holiday sales at around 20%, but that still leaves the other 80% of retail taking place in stores. And I think even e-commerce shopping drives more shopping and more purchasing in stores. [00:15:30] For example, we had a recent survey that we conducted and we found that when people do buy online, pick up in store, almost 60% of them actually make another purchase when they pick up their orders. And we'll definitely see that during the holidays as well. This is an ongoing trend of increasing in-store shopping taking place as a result of orders that are placed online.
Zak Stambor: That could be a real benefit for retailers like Target that have a very strong [00:16:00] buy online, pick up in store option as consumers with the short calendar turn to buy online, pick up in store to get their holiday purchases in time.
Sky Canaves: What's so interesting about Target is they have great curbside service for both picking up orders and returning items. And I still end up going into the store. This week I made a purchase online and I also had to return something, and I did that curbside. And then on the way to the store I remembered [00:16:30] I had to buy something for my daughter, so I went into the store and I wound up buying things I totally didn't need. Thank you, Target.
Sarah Lebow: So Sky remains ahead of both Zak and I in her holiday shopping and in her day-to-day shopping as well. Okay, well, that is all we have time for today, so thank you for being here, Zak.
Sky Canaves: Yeah, thanks for having me.
Sarah Lebow: Thanks for being here, Sky.
Sky Canaves: Thanks again, Sarah. It was a pleasure.
Sarah Lebow: Thank you to our listeners and to Victoria, who edits the podcast and who's always [00:17:00] a gift to work with. We'll be back next Wednesday with another episode of Reimagining Retail, an Emarketer podcast. And tomorrow, join Marcus for another episode of the Behind the Numbers Daily.