I knew it was coming. It’s the end of August, so of course when I went into my local supermarket on Tuesday there were going to be shelves and shelves of mince pies, Yule Logs and Christmas puddings (almost all with ‘use by’ dates that expire some considerable time prior to the big day itself!).
But, given that brutal reality, that also means it’s time for the annual dive into what we can expect retail trends during the Holidays to look like. Given the ongoing macro-economic issues and general cost of living crisis, this year’s predictions are likely to attract a good deal of scrutiny.
Even so, Salesforce VP of Retail Rob Garf cautions against too much negativity:
What we saw in 2020 was an unprecedented surge in digital because we couldn't go in the store. Over the last year-and-a-half or so, we've seen a levelling off of digital. Why that is is really, majorly because the stores are back online and people are now [using] nine different touchpoints across any given shopping journey with this hybrid or blend of digital and physical shopping.
While there's been some narrative in the market that digital has totally crashed and given all the growth back, that's not true. When you look at these numbers, the compound annual growth rate is still very healthy. We are still well above where we were in 2019. The key piece is that we've seen more and more digital shoppers, a 40% increase in net new digital shoppers. These are people that have new expectations and new behaviors, and that's not snapping back. It's not going back to pre-pandemic levels. People are shopping more online. They have higher expectations and they're shopping whole new categories.
A Christmas list
So, what can retailers expect this year? According to data from the Salesforce Shopping Index, which tracks online data and preferences of 1.5 billion consumers worldwide, there’s not much cheer to be found in what might be to come. The projected global sales growth rate stands at four percent, which would mean around $1.19 trillion in online sales.
Interestingly, that growth is being driven out of Europe. For the US retail sector, that year-on-year growth rate is a mere one percent, which would deliver around $273 billion. Caila Schwartz, Director of Consumer Insights and Strategy for Retail and Consumer goods at Salesforce, points to a sort of role reversal in play here:
The last 12-to-18 months across Europe have been challenging for digital sales, especially across nearly all of 2022, when we saw negative year-over-year growth every single quarter across all regions of Europe. What we're seeing in 2023 is growth start to happen again, which is great and encouraging. So what's interesting about this Holiday season is that typically the global growth numbers are driven out of what's happening in North America. But actually this year, we anticipate that Europe will drive much of this growth. We're seeing the US enter a period of negative year-over-year growth...For the majority of 2023 so far, the US has actually been in a negative year-over-year growth rate pattern.
It’s not such good news for Brexit Britain though, she adds:
While [I say] Europe has continued to grow, I should caveat that by saying most regions across Europe. The UK is still seeing a digital rebalancing. We're still seeing negative growth coming out of there.
Given the global macro-economic climate, consumer sentiment remains a challenge for retailers, says Schwartz:
Overall, most global consumers feel pessimistic about their local economies. Forty-six percent of global consumers say that they feel either pessimistic or very pessimistic about their economy. If we drill in looking at individual regions, I would say that this is pretty ubiquitous across all regions, except for Brazil, which is much more optimistic about their local economy. But everywhere across Europe, as well as North America, is feeling the pain.
What consumers are doing ultimately is they're taking control of their finances, so they are saving more, buying less and ultimately preparing their own personal situations for any upcoming economic events that might be coming down the line. This is something that we've seen emerge around the middle of last year, especially driven by the economic challenges in Europe. It's continued through 2023 and we expect that it will be a challenge as we go into the Holiday season. That trend seems to be continuing to percolate. Consumers say that even though they're spending more money, they're trading down for lower prices. So they're bargain hunting, they're making concessions, and ultimately pricing is what's driving their decision making.
To that end, consumers are doing a lot more research before making purchases, she goes on:
We're definitely seeing a shift. We have been seeing a shift from discretionary spend to non-discretionary or need-based spend. On discretionary spend, they're trading down. Quality is still really important, but ultimately consumers want to feel like they have a great deal. What we anticipate happening this Holiday is that retailers will pull out more and more discounts, more promotions, in order to stimulate demand and also attract shoppers.
Salesforce’s analysis suggests a seven percent year-on-year increase in discounts. That’s a marked change from 2021 and 2022 when the discounting seen over the Holiday period was at its lowest. Consumers reacted to that and this had an impact on demand. This year, expect to see a return to a more ‘traditional’ promotional approach, with the first spike of activity likely to come in October with Amazon Prime Day, says Schwartz:
We're gonna see much of that discounting happening pre-Prime in order to pull demand ahead of the Prime event, then we're going to see a lull in discounting between October and early November. Ultimately, margins are still really important for retailers, but also consumers are wising-up to promotional strategies, and they're waiting until those big events. Consumers at this point are conditioned for Cyber Week being the biggest Holiday discounting event. We saw this happen last year - Cyber Week actually pulled sales back into Cyber Week. We saw some of the lowest or worst performance in early November that we've seen in a really long time as Cyber Week stole back some of those sales.
We anticipate that that will happen again this year. Cyber Week will be the top discounting period of the season. Consumers are going to hold out for Cyber Week. Some consumers will transact in early November, but the majority of consumers will wait to transact during Cyber Week when we anticipate those discounts. And then the rest of the season, we'll return back to a normal discounting period and discounting cadence which we see every single year.
Generative jingle bells?
What we’re going to hear more of this year is, inevitably, the potential impact of generative AI on the retail sector. Salesforce’s data is predicting that $194 billion of digital sales globally will be influenced by both generative and predictive AI. That’s an important distinction to make, notes Garf:
What we've seen over the last 12 months has been predictive AI. Our research shows that 13% of all digital orders over the last 12 months have been influenced by predictive AI, mainly with product recommend. We'll see more generative AI as it relates to marketing, with retailers testing subject lines and email copy. We have one customer who is seeing a 10% to 20% increase when they go with generative AI products. We're seeing it in commerce as well, whether it's product descriptions, which is what we're releasing here at Salesforce, or 'commerce concierge’, thinking about how AI becomes the new way to search and service as well.
But let’s not get carried away with our expectations around generative AI this Holiday season at least, he adds:
It's going to be a relatively smaller percentage for generative AI this Holiday, [compared to] predictive AI. But we're seeing the way in marketing that emails are actually generated from Artificial Intelligence for the subject line and the email copy. For the commerce experience on the website, product recommendations will be generated and then checked and modified, but generated by generative AI. For service, chat bots have been around for some time. They will be, in many cases, generated by generative AI.
Outside of retail, Garf cites the example of his need to change some information on a financial website which did not make it particularly easy to do. Normally he’d have wanted to speak to a human service agent, but in this instance a generative AI chatbot provided him with a “very realistic human response” that enabled him to complete the task. That will start to be seen more and more in retail use cases, he argues:
It was really quick. It was really easy. It saved that company time. It saved me time. And so you'll see that more, especially with pretty easy types of questions like, 'Where's my order? How do I do a return? Where's the closest store?' that might be generated in natural language. Down the road, we'll see more of that. One of our customers uses this catchphrase of 'AI becomes the new UI', meaning the new user interface because that's the way AI really becomes the next generation of the search engine, but it's more natural language.
The behavior and the trends we see during the Holiday typically become the new benchmark and the new expectation for the next year or two.
If Garf’s assertion is correct, the predictions being made this year are a combination of continuing themes, but with the unexploded potential of generative AI as the shiny sixpence thrown into the pudding mix. The pragmatic recognition that this isn’t going to be the jolly generative Christmas that the hype cycle might suggest is a welcome one. That’s a ghost of Christmas Yet To Come.