How COVID-19 will impact the 2020 holiday shopping season

Along with cooler temperatures and colorful leaves, October typically marks the start of holiday shopping predictions. For the past decade, the National Retail Federation (NRF) has predicted year-over-year increases in holiday sales, and the predictions have come to pass. 2020 could be the year the winning streak ends, but as NRF notes, “nothing about this year is predictable.

Indeed, retail sales have been stronger and more resilient than expected throughout much of the COVID-19 pandemic. They plunged in March and April after state and local governments temporarily closed or limited in-person shopping, but then jumped 3.8% year-over-year in June, when most shops reopened. July and August brought more modest growth, by 0.9% and 0.6% respectively; this was less than many economists had predicted.

Despite political uncertainty and the prospect of a winter resurgence of COVID-19, employers added 661,000 jobs in September, according to the U.S. Bureau of Labor Statistics. Many of these were in the retail trade. Approximately a quarter of retail’s gains were in clothing and clothing accessories stores, though employment in general merchandise stores and motor vehicle retailers also grew. Yet there were still 483,000 fewer retail jobs in September than February, and now many temporary furloughs are becoming permanent job losses.

This is indicative of a K-shaped recovery: White-collar workers and wealthy Americans are generally thriving even as many middle and low-wage workers continue to struggle. Overall, retail seems to be benefitting from the full purses of the wealthy, a trend that should continue in the coming months. And it’s possible that many middle-income consumers will have more dollars to spend on tangible goods over the holidays, since they’re spending less on commutes, experiences, and travel.

Thus, Deloitte predicts holiday sales in 2020 will grow between 1% and 1.5% year-over-year. This projection melds two possible scenarios: “relatively stable year-over-year increase (0% to 1%) or a more significant jump (2.5% to 3.5).”

Whether 2020 holiday sales come in on the low or high end of that spectrum, a record number are expected to take place online. According to Daniel Bachman, Deloitte’s U.S. economic forecaster, “Ecommerce is likely to be a big winner because consumers have shown a clear movement towards buying online rather than at brick and mortar stores.” In fact, holiday ecommerce sales could grow by 25% to 35% over 2019.

This is in step with the year’s trend. Approximately $1 out of every $5 spent during the second quarter of the year came from online orders. That’s 20.7% of all sales — a marked increase over Q2 2019, when ecommerce represented 14.7% of sales.

According to data from Adobe Analytics, ecommerce sales increased by 76% year over year in June, when in-person shopping was limited nationwide. Growth slowed a bit in July as stores reopened, yet it still grew by 55%. 

Since winter will likely bring a resurgence of COVID-19 cases, ecommerce is expected to be the preferred channel for consumers.

Holiday sales are always critical to the bottom line. To maximize sales in the coming months, retailers will need to:

  • Get noticed
  • Prepare for early shopping
  • Optimize the supply chain
  • Maximize convenience
  • Minimize returns
  • Streamline tax compliance
  • Be agile

Get noticed

Given the more than +/-1.7 billion websites on the web, it’s easy for online stores to fall into a black hole. To reach potential customers, retailers need to understand who their customers are and where they spend their online hours.

Advanced customer relationship management (CRM) tools help ensure messaging is both relevant and targeted. CRM and marketing systems allow multichannel retailers to create detailed, cross-channel profiles and personal messaging. This is especially useful when promoting via social media.

The average internet user spends more than two hours on social media every day, so it’s wise to incorporate social media into the customer journey. In fact, according to a 2019 study by Global Web Index, one in four internet users discovered brands through social media comments or recommendations.

Social media is an ideal platform for interactive ads, which allow customers to virtually try on products or engage with polls and games. Yet social media isn’t just about spreading the word. During the third quarter of 2019, a whopping 21% of internet users purchased items through social media channels. Even mobile users are getting social: Salesforce expects 10% of mobile purchases to be referred from social channels on the Wednesday before Thanksgiving, alone.

Retailers with no social media presence are missing out, especially among certain demographics. Approximately 37% of Gen Z shoppers say they’ll be searching Instagram for gift ideas. One in four millennials is looking to shop through gaming consoles.

Prepare for early shopping

No matter where they find the items they want to buy, a record number of consumers are expected to start their holiday shopping early this year. In fact, NRF is actively encouraging consumers to “Shop safe, shop early.” Large retailers like Amazon, Target, and Walmart are doing the same.

Indeed, Amazon essentially opened the holiday shopping season on October 13 and 14, with Prime Day sales. The event, traditionally held during the July doldrums, was postponed because of COVID-19; it’s now an unofficial kick-off to the holidays. If projections prove correct, Prime Day will help shift $6 billion of November’s Cyber Week sales to October.

As typically happens during Prime Day, no matter when it’s held, other online sellers also slash prices in hopes of competing with the online behemoth. And behold, a new holiday shopping event is born.

Consumers are unlikely to need much prodding. When COVID-19 first swept the nation, the sudden surge in demand for certain products disrupted supply chains. Retailers had a hard time meeting demand. With the memory of empty shelves still vivid, retailers replenished stock early. According to NRF Vice President for Supply Chain and Customs Policy Jonathan Gold, “Nothing about this year is predictable, but retailers are making sure their shelves and warehouses are well-stocked for the holidays…. Some holiday merchandise that normally wouldn’t arrive until Halloween is already here.”

To capture market share, Andrew Lipsman of eMarketer recommends retailers try to establish a relationship with consumers early on: “By stretching out sales and marketing special offers and products in a variety of channels — marketplaces, online stores, social media, etc. — retailers can grab the attention of new customers and drive sales leading up to the holidays.” Those that do will be top-of-mind throughout the holiday shopping months, so long as the experience was a positive one; shoppers will be more likely shoppers to revisit ecommerce stores able to fulfill orders quickly.

Chris Dessi, vice president of Americas and Australia of Productsup, says early holiday shopping allows retailers to discover and respond to “current buying trends.” It can also help prevent a late-season spike in demand, which can stress fulfillment and supply chains.

Optimize the supply chain

More online sales means more deliveries, which will stress already-stressed global supply chains. Indeed, they’re expected to be strained to near breaking in the coming months: Salesforce predicts more than 700 million holiday packages could experience delays because orders will exceed shipping capacity by 5%.

Concerns over fulfillment could trump brand loyalty. Consumers will buy from retailers that can deliver the goods, so warehouses and shelves must be well stocked. Reliable shipping and delivery partners must be at the ready.

Cloud-based inventory management and warehouse management systems allow retailers to know what’s in stock and ensure it can get where it needs to be. They can integrate seamlessly with ERP or back-office solutions, as well as with third-party logistics providers, to make data-based decisions and streamline order fulfillment. In doing so, they can help cut processing costs and reduce errors. During peak holiday season, the enhanced efficiencies offered by inventory and warehouse management systems helps retailers close sales.

COVID-19 delivery surcharges are expected to help logistics professionals meet demand. Retailers able to absorb these surcharges and provide free shipping will likely win customers. Those that sidestep congested delivery channels and minimize or eliminate delays by using gig-economy deliverers could be even more successful.

Maximize convenience

The popularity of buy online, pick up in store (BOPIS) has been growing for years: During the 2019 holiday season, roughly 60% of U.S. retailers offered that option. Retailers that hadn’t embraced BOPIS before COVID-19 quickly learned its value after brick-and-mortar stores were forced to temporarily close or limit customers.

Indeed, retailers that offer BOPIS will likely experience growth during the upcoming holidays. Salesforce predicts retailers offering BOPIS will be able to increase digital revenue by an average of 90% year-over-year.

The closer the holidays, the more willing consumers will be to embrace BOPIS or click and collect. In fact, retailers offering click and collect are expected to generate 28% more revenue across their industries during the five days before Christmas. Since shipping delays have been more common than usual during the pandemic, anxious shoppers will understandably prefer these options.

Minimize returns

With supply chain and logistics companies already expecting to exceed capacity, the last thing anyone needs is an influx of returns. Online sales often experience high return rates, sometimes as high as 40%. Helping consumers make the right choice before checking out is the best way to minimize them.

Brick-and-mortar stores can count on sales associates to help customers find what they want. It’s less easy to provide that kind of assistance online, but it is possible, especially since consumers are increasingly willing to let themselves be known. According to a report by business intelligence platform PSFK, roughly 58% of millennials are willing to share personal information in order to get well-suited product recommendations.

Artificial-intelligence (AI) support enables ecommerce merchants to glean consumer preferences and serve up more selective choices. It can also gather information to present to human successors, in the event more assistance is needed.

 

Perhaps now more than ever, consumers want and even need to feel connected. Before COVID-19 limited interactions with family and friends, 72% of consumers aged 18–64 said their online shopping experiences would be enhanced if they could text with a live agent in real time. It’s likely that even more consumers would say the same if asked today. Retailers able to provide such a personalized shopping experience will likely win customers for life.

Streamline tax compliance

Retailers required to collect and remit sales tax in multiple states will want to ensure they have a solution in place to assign the proper rate to each transaction. Consumers stressed by months of COVID-19 and economic uncertainty will likely be less forgiving than usual when confronted with surprise costs at checkout.

Automating tax compliance enables retailers to calculate rates based on geolocation and product classification at checkout, in real time. It can also facilitate the returns process, allowing retailers to stay focused on customers and sales.

Likewise, global sellers will need to account for customs duty and import taxes in addition to sales tax, goods and services tax, or value-added tax. Global sales surged during the pandemic, increasing 71% year over year during the second quarter, and that trend will likely continue in the coming months. 

Retailers importing low-value goods into the U.S. should consider taking advantage of Entry Type 86, which expedites clearance of low-value shipments and ensures they won’t be delayed at customs. To qualify for the expedited Entry Type 86 clearance, imports must be identified with a Harmonized Schedule (HS) code. Item classification software can streamline HS code assignment.

Be agile

Given the unpredictable nature of 2020, retail success this holiday season will depend on agility.

Overall, multichannel retailers are well positioned to capitalize on consumer trends no matter where they land — in store, online, mobile, or a combination thereof. While each channel brings unique opportunities and appeals to certain types of consumers, Google reports that 78% of U.S. holiday shoppers in 2019 used three or more channels to complete their holiday shopping. This year, that figure will likely rise.

To successfully navigate periods of peak sales, multichannel sellers must be able to manage orders from every channel. Failure to do so can lead to gaps in inventory, unfulfilled orders, and unhappy customers. Using scalable order management software permits retailers to track customer information, orders, and payments securely through an integrated app.

Management software can also automatically track each stage of an order’s status and notify customers when their order is dispatched, eliminating guesswork and reducing frustration. Out-of-stock items are identified, allowing retailers to manage back-orders and pre-orders.

The fact is, fewer consumers than normal will shop at brick-and-mortar stores in 2020, and many who do will confirm online that items are in stock before mobilizing. It’s therefore essential for retailers to ensure ecommerce stores and websites contain the most up-to-date, accurate information, and that back-end systems connect sales made through all channels. Google reports that 90% of global shoppers who end up in stores search online first.

It will be important to monitor consumer behavior throughout the holiday season and be agile enough to respond to emerging trends. For example, increased sales in one part of the country may necessitate moving inventory from one location to another, or contracting with gig-economy drivers to facilitate transportation in the final mile.

As 2020 has made abundantly clear, it’s impossible to predict the future with certainty. Nonetheless, it is possible to set your business up for success by reaching out to potential customers where they’ll notice you, preparing early, optimizing supply chains, maximizing convenience, minimizing returns, streamlining tax compliance, and above all, staying light on your feet and ready for whatever the future brings.

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