We've shifted from the last 16 months or so of focusing on needs to moving to wants.
That’s one of the underlying themes to emerge from Salesforce’s Q2 Shopping Index and one that’s suggestive that 2021 could well see a particularly strong boom in spending as post-pandemic shoppers shake off the restricted existence of recent times and splurge for the Holidays.
Yes, it’s July so it’s time to start thinking about Christmas! Or at least it is for retailers. As diginomica has covered extensively over the past 18 months, the COVID crisis has had an enormous impact on the retail sector, sometimes positively, sometimes negatively. But overall, the industry that’s taking shape for the Vaccine Economy will be a very different one in many ways.
So what can we expect from the Holiday season this year as store fronts around the world re-open and shoppers return to the physical as well as the virtual aisles? One overall conclusion is that the elusive omni-channel balance between digital and real-world is going to be more important than ever. While digital was (literally) a life saver during the pandemic, vaccinated shoppers will want to get back into the stores.
Salesforce’s Q2 Shopping Index, based on research among 1 billion shoppers in 12 key global markets, already shows signs of this. It notes:
After four quarters of massive digital shopping growth, Q2 spending growth came back to Earth with a modest increase of 3% year-over-year. Despite traffic growing at 8% - on top of the significant jump last year - customers simply spent less online as physical stores began to re-open.
But the online genie is out of the bottle and not going back in, advises Rob Garf, Salesforce VP and GM of Retail:
We set a new baseline in digital, there's no question about that. Even with the large increase we saw in 2020, in Q2 we still saw a slight increase of 3% globally. We see it time and time again with this new digital shopping behavior. It's not going to snap back like a rubber band to pre-pandemic levels. Really the winners are those that can weave together a physical and digital experience.
If you think about what loyalty was defined as over the last 18 months or so, it was all around safety, health, convenience, trust, and to me, the common thread across all of that is taking the friction out of the process. Nobody's going to want to go back and have friction once again. A lot of that friction often occurs between a digital experience and the physical experience. Those retailers and brands that are really scrappy, and I use that in the most positive way, they're going to move from scrappy to scale. That scale is really going to be around smoothing that engagement between digital, where a lot of inspiration and research happens, and the physical, where still around 85% of all transactions still occur.
The meshing together and streamlining of the physical and digital has set a whole new baseline, not just for taking the friction out of the experience, but providing a personalized engagement for each of the nine disparate touch points that a consumer engages with a retailer at a given shopping journey.
All we want for Christmas is...
Based on the Q2 findings, Garf offers up a number of predictions for this year’s Holidays, beginning with a somewhat downbeat warning that consumers, retailers and shoppers are going to have to bear the brunt of higher costs of manufacturing, logistics and labor this year:
There are fewer workers, raw materials are expensive. Raw materials are continuing to be more expensive and that's going to put $12 billion of incremental dollars of costs into the supply chain. But the biggest hit is going to come in logistics. Unlike last year where it was all around the 'last mile', this is around inbound and getting it through the port, particularly here in the States with the Port of LA which has just had a real bottleneck.
Labor costs will also go up, based partly on increased wages, but also driven by staff shortages:
There will be fewer associates, we know that, about 350,000 fewer than is needed. And then of course, you have higher wages, not being mandated necessarily by legislation, but some of the larger players who are trying to attract and retain great talent and, as you have always typically seen, there is turnover in temporary work around the holiday season.
Still on the subject of labor, the role of the store associate will continue to be re-imagined, says Garf, as retail employees are expected to act as fulfillment experts to execute on online orders; customer service agents; e-commerce specialists; and social media managers:
For fulfillment, we saw the influence of being able to buy online at home with safety and security over the last 18 months, and then being able to pick it up in and around the store with confidence and convenience. What do the economics of the box look like when fulfillment becomes the norm, and traffic ratchets up and you need to balance providing service in the physical store while fulfilling orders, to pick, pack and get them out the door?
When many store associates were shuttered, they were providing service all of a sudden at home and doing it in incremental shifts of 30 minutes, 60 minutes, on and off throughout the day. We're going to see that again for the end of the year and all the way through the Holidays as well. They’ve been really replicating that physical engagement that so many people thrive and thirst for, in the digital world. And then lastly, social as well. I was talking to a luxury brand just recently which is embracing this. When luxury brands are willing to give up some of their control of their brand and allow their associates to represent the brand in the digital world through social, you know, the industry is going to follow fast.
Retail marketing behavior will also have to evolve, says Garf, as he warns of a “Christmas without cookies” thanks to ongoing and looming changes in global legislation around consumer data collection and exploitation:
Not all the legislation deadlines will be in place through the end of the Holidays, but many retailers are getting ahead of it and understanding what marketing is going to look like. This is one of the biggest shake-ups in the last five years as it relates to not just digital marketing, but marketing overall. How are we going to engage? How are we going to provide personalized and relevant interactions when we are going to have less information available to us about consumers, especially through third party data?
Garf sees the impact being felt in three main areas, beginning with a re-evaluation of loyalty programs, along with more focus on social outreach and personalized email marketing:
We're going to see a doubling down on social and retailers pushing their brand to the edge where consumers are shopping. We're going to see a 30% increase in social referral over the holiday for attraction and then all the way through the dynamic funnel as well. Those retailers and brands able to get access to that first party data from the value exchange that they're embarking on, will also increase email sends, but they will be personalized.
And for those of us who feel that Christmas starts earlier and earlier every year, the bad news is that this is going to be very much the case this year. Last year physical stores were largely closed or operating under tight restrictions. This year, there will be some key dates to watch out for, specifically July/August for ‘back-to-school’ and ‘back-to-work’ booms; November for the run-up to Black Friday with supply chain shortage concerns triggering ‘shop early’ behaviors; and late December, where click-and-collect and Buy Online, Pick-up In Store will be used to keep shoppers active right up to Christmas:
Last year, for the five days leading up to Christmas, those that had Buy Online, Pick-up In Store capability saw a 16% higher year-over-year growth over those that didn't. We're going to see that [again]. Those retailers that can extend the holiday shipping window all the way to right before Christmas, have that much more runway, have that much more availability or fulfilling a product.
Finally, after being under effective ‘house arrest’ for months and months, shoppers are going to be in the mood for fun, adventure and treating themselves to a bit of self-indulgent luxury, predicts Garf:
Consumers are going to splurge on experiential categories. In the context of coming out of COVID and really seeing a rebirth in retail, there are categories that are going to be super interesting to watch this holiday. The first is adventure. We're all thinking about, whether it's entertainment, travel, or dining, what does that adventure look like? Those categories that really enable us to get together, feel human again and be social are going to thrive. There are going to be places that people are going to look for to make this shift from needs to wants.
I am allergic to Christmas starting too early. Mince pies appearing on the shelves of supermarkets in August brings out consumer rage in me. But from a retailer perspective, particularly this year after the pummelling the sector has taken during the pandemic, planning ahead is critical. I can’t disagree with any of the 5 predictions Garf makes above. But the one comment I would drill down on is the criticality of getting the omni-channel balance right. We do want back into the stores. We’ve all missed aimless browsing the aisles, surely? But the COVID shift to digital is not going away. The successful retailers this Holiday season will be those who walk the tightrope between physical and digital in a genuinely complementary way.