I can’t stop thinking about what will become of the holidays. Will we all be waiting in lines at bricks-and-mortar stores? Will stores be closed on a state-by-state basis depending on COVID’S current scenario? Will shoppers wind around city blocks to get the newest TV? What will become of Black Friday?
Every day another piece of economic news is revealed. All one needs to do is wake up to Bloomberg citing facts like these: GDP shrank at a 32.9% annualized pace in the second quarter from the first, the most in quarterly records dating back to 1947, highlighting how the pandemic has ravaged businesses across the country.
Let’s start by taking a look at the overall holiday numbers as reported by Digital Commerce 360 upon completion of the 2019 season:
- Total sales through all channels were $722.60 billion, a 4.1% lift from $694.32 billion in 2018; ecommerce accounted for nearly 60% of all retail gains during the holiday period.
- Shoppers spent $138.65 billion online during the 2019 holiday season up 13.6% from $122.00 billion in 2018.
- Online share of total retail sales in November/December soared to 19.2%, up from 17.6% in the prior year and the highest penetration recorded to date.
- 6 million U.S. consumers shopped over the five-day period from Thanksgiving Day to Cyber Monday, resulting in a 14.3% increase from the $165.8 million in 2018.
While the numbers serve as a backdrop, much of this discussion will be on the mindset of the shopper and the fate of the retailer. With that in mind, I’ve built out a series of questions and have asked our editors to share their point-of-view. We will integrate these thoughts as we anticipate what the holidays will look like in 2020.
This second of two parts focuses on the retailer impact, priority lists for the holidays and back-end issues that range from inventory to logistics and fulfillment.
The retailer impact
Some retailers will reap the rewards and others will move onto life support.
Will Amazon’s runaway market share continue to accelerate in these times?
I am fearful that just as Amazon’s Q2 2020 versus Q1 2020 sales doubled, its holiday business will also accelerate exponentially. It will continue to be the default retailer for most shopping. Shoppers will seek out familiar customer experiences known for ease of use over testing of the unknown. The logistics in particular will fuel the push with next-day Prime Delivery entrenched in the minds of every seasoned shopper.
One editor concurred, “Absolutely. Shoppers know they can count on Amazon to get their products to them, and on-time. Plus, sometimes Amazon is the only merchant with the product in stock.”
While just over half of Amazon shoppers suggest they expect no change in spending, 32% project an increase, as the pandemic becomes prolonged.
One of the most interesting findings is that 43% of online shoppers suggested that Amazon became a more important resource post-pandemic. This dependency indicates that its potential holiday numbers could be even greater than projected.
Half of online shoppers purchase on Amazon due to its Prime membership and free shipping. Amazon’s efficiency has long been important to shoppers. The fundamentals from competitive prices to availability seal the deal and its delivery prowess ensures satisfaction among its shoppers throughout the year.
What other retailers will be the beneficiaries of these challenging times?
It seems only logical that mass merchants including Target and Walmart will benefit as they can address both the assortment issue while also meeting omnichannel expectations. At the same time, I’m hoping that specialty retailers and direct-to-consumer brands still can find themselves in a good position when it comes to unique products.
“Digitally native brands that offer something unique, don’t sell on Amazon and have innovative marketing on all the social media channels we are all visiting more due to the pandemic (TikTok, Facebook, Instagram, etc.) may stand to gain. People want to steer away from Amazon but still head there for many items due to sheer convenience. But if a small, digitally native brand offers something unique and catches consumers’ eyes they will attract their hearts and pocketbooks.”
The Category Upside
“Toys always do well over the holidays, but I anticipate the category will grow even more online this year during the pandemic. Especially for retailers offering educational toys and sellers of specialty pieces that are more unique than the standard Barbies and Legos. Exhausted parents whose kids have been stuck inside with no school, limited outings and playdates and no way to run off their energy will be looking for ways to keep the young ones occupied after many long months of quarantine, and I think they’ll be willing to invest more in novelty toys in an attempt to stave off the boredom. I could see home entertainment and flowers/gifts/gift baskets growing at a higher seasonal rate than usual as November-December will likely have fewer holiday gatherings, and families may be forced to hang out at home and send their loved ones holiday reminders and tokens of their affection. I also think at-home beauty and pampering products will see a surge—like at-home manicure/pedicure kits, CBD products, skin care masks, etc.—for consumers looking to relax in a particularly anxiety-inducing time. Although online grocery overall will continue at the same level as the earlier COVID period, I don’t think it will see a giant uptick around the holidays since parties will probably be at a minimum this year, but digital beer/wine/spirits sales could swell in November-December.”
How will marketplaces fare?
One other important sector that may have great influence over the holidays is marketplaces.
Marketplace shopping is predicated on better prices and free shipping along with in-stock products that can be delivered timely. 71% of online shoppers indicate they will be buying about the same via marketplaces in the coming year—and even better, 19% reveal they will be buying more.
Marketplaces currently represent 35% of ecommerce for respondents and 71% expect an increase in the coming year for the 118 retailers who participated in our May 2020 Digital Commerce 360 survey.
Looking further at the retailer perspective, growth was the order of the day on Amazon’s marketplace during COVID-19. 66% of retailers surveyed are experiencing at least some growth suggesting that Amazon marketplaces are well-positioned for a strong holiday. 37% reported that they will expand the number of marketplaces they will sell on for the remainder of 2020.
“Marketplaces will fare well during the holidays because they can handle the volume of orders without going out of stock like other retailers. Because of the marketplace model, multiple sellers offer the same products so buyers have more options. Additionally, marketplaces have shown already this year that they’re benefiting during the pandemic. Aside from Amazon, large marketplaces like eBay and Etsy are hitting record sales levels this year.
“Just look at eBay’s most recent earnings. U.S. gross merchandise value grew 34.6% in the second quarter. Total GMV, including its international markets, grew 26.3% in Q2, the highest quarterly growth rate eBay has seen in 15 years. So in a word: Well. Not to mention how well we all know Amazon is faring in the crisis, also well. Marketplaces offer many online merchants in one spot. They only stand to gain. Then with Etsy and other niche marketplaces, you’ve also got their appeal to shoppers not wanting to go out to store but who also want to support smaller businesses and not Amazon. However, Amazon will continue to be a go-to for fast delivery of essentials and food.”
What lessons have we learned from the pandemic that should be factored into holiday planning?
Shoppers are willing to try new services
Omnichannel matters more than ever and just look at the surge in curbside. Shoppers have different priorities now than last holiday season. A shopper may prioritize a service being contactless over convenience and will be willing to try something new to ensure she avoids people. Retailers should not shy away from offering a new service as shoppers may be craving to use it.
Flexibility will be key
“Don’t underestimate online demand and get prepared to handle significantly more online orders than last year. In the grocery business, retailers were increasing their omnichannel capabilities at a good pace. But when coronavirus hit, they got slammed with far more online buying than anyone could have predicted. With that in mind, retailers should consider worst-case scenarios–like the possibility of a second wave of lockdowns–and have plans in place now.
Retailers also should prepare for a sluggish holiday season overall–online and offline. So, this is a good time for retailers to talk with landlords, bankers and suppliers about contingency plans in case they hit a serious cash crunch.”
Holiday forecasting and logistics planning is tough enough for retailers in a normal year. But developing a fulfillment strategy that adequately addresses supply chain, inventory management and delivery options for the all-important November-December period has become a herculean task in 2020. Retailers have to be able to pivot quickly and get products into the hands of their consumers using contactless methods that will encourage buying. They have to commit to scenario planning so they can better recalibrate depending on what curveballs are thrown at them between now and the holidays. And just get new features to market—there is no time to go through the typical approval channels, bureaucratic hoops and testing periods. Don’t wait to perfect every piece of curbside, for example—troubleshoot as employees are putting it in place.
What should be on every retailer’s priority list?
Keeping these lessons top-of-mind, the focus among our team was on the back-end part of the user experience.
Looking back at our research in advance of last holiday season, the most important logistical factors that influenced when and where people would shop was by far and away having product in stock and ready to ship. That was the No. 1 factor for 70% of those surveyed.
Over the course of the pandemic, we surveyed shoppers and the following inventory insights were revealed. Digital Commerce 360’s August Click Ship survey of 1,141 online shoppers revealed that 51% had an order delayed because of inventory issues. Earlier April surveys saw similar results at 47% as compared with much lower numbers in March when the pandemic began.
Inventory may be the biggest retail challenge. Will retailers have enough stock to make their numbers this holiday season?
Determining inventory stock levels may be the crux of a successful holiday season. Stock was quite tight in many categories amidst COVID-19, and I can’t imagine the holidays will be any different. The uncertainly means a balancing act with retailers forced to decide the right amount of product to have on hand. Between uncertainty amidst weakening consumer conference levels and a desire to optimize the holiday sales, optimization of inventory will be essential.
“A lot of retailers fell behind on stock when the coronavirus initially hit the states and have been struggling to catch up since. Many have also stated that they aren’t sure what the holiday season will look like as customers slow their nonessential purchases and dial back gift budgets. What we’ll likely see are some retailers that under-purchase and others that are stuck with excess product after the holiday season winds down.
Even when the pandemic was supposed to be slowing, retailers still struggled with fulfillment. I personally ordered some fencing materials in early June, was given a fulfillment date of later that month, and only just received my items at the start of August. This was from a major retailer that assured me they had my very items in a local store and would be able to deliver them within a two-week span. What happened was the retailer placed the blame of the late delivery on the financial institution I used to pay, saying that there was a hiccup with their order-processing center. Believable, but completely false—as half of another order placed at the same time which the same retailer delivered when expected.
I think we’re going to have an excuse-burdened holiday season with retailers being unprepared.”
What changes will be in play from a logistics point-of-view?
Faster will be inevitable as the holiday season approaches. Amazon has set the bar in this regard and shoppers have heightened expectations. Next-day delivery could now be seen as the norm among powerful retailers.
At the same time, same-day delivery may play a more important role. With stores shuttered or hampered by long lines, online shoppers may depend more on same-day delivery to get their goods. The numbers for same-day detail from our database show that 5% offer same-day delivery. Though small in number, this includes many larger retailers including Apple, Walmart, Wayfair and Best Buy.
Logistics according to another editor means, “Anything and everything. Retailers have to put supply chain plan Bs in place. One online handbag retailer found out the Italian factory she sourced her vegan leather from abruptly shut down and was left scrambling, thankfully finding an alternative textile made from cacti from a Mexican manufacturer. A coffee bean retailer ordered a huge surplus of coffee bean bags from its manufacturer in Taiwan because shipments are taking much longer to clear customs.
“Additionally, depending on a retailer’s vertical, some have been stocking up on inventory in anticipation of a big surge in holiday demand and to avoid sell-outs and lag times before they can restock due to longer delivery times with overburdened carriers, etc. Others in slow-growth categories are opting to place smaller ‘mini-bulk’ orders with manufacturers, which they plan on replenishing more frequently, in a more conservative approach in order to gauge consumer demand before committing to X number of sweaters and avoid overstock that has to go on clearance at the end of the season. There’s much fluctuation in retail right now, and because merchants don’t know how and when the pandemic will end or how consumers will behave once they feel totally safe shopping in stores again and resuming normal life, it’s hard to plan for the future.
“With retailers hesitant to commit to long-term leases for warehouse space or invest in building their own facilities without knowing how much of current buying patterns will be permanent, a number of them are turning to flexible warehouse rental spaces. As for fulfillment, it will be crucial for retailers to tweak shipping timelines to account for carrier delays, which only will be magnified in November-December with the holidays and potential weather events, to promise holiday delivery. This is likely to be the first year where consumers have to plan gift buying further in advance and pad in more delivery time than the previous season. A consultant suggested this is the year for testing new, innovative programs, and he could see ride-sharing companies being used for last-mile deliveries as traditional carriers are overburdened.”
Fulfillment, fulfillment, fulfillment
“Carriers are already strapped: Imagine what will happen during the peak holiday online shopping surge. Many parents will be homeschooling while trying to juggle working from home but picking, packing and shipping boxes isn’t a work-from-home kind of job. Retailers need to put a plan in place to get packages to consumers’ doorsteps by Dec. 25 without them having to order now.
“Merchants might want to consider moving warehouse operations temporarily to areas not as impacted by COVID or outsource fulfillment. Also, retailers might want to consider using last-mile local carriers to diversify shipping options based on shopper location or selected shipping speed. Retailers should do contingency planning now and get as prepared as possible for multiple scenarios during the holidays. The delivery ecosystem is already stretched to capacity limits. If carriers can’t manage it all, then the only option is to accept that it will take more time for packages to reach shoppers’ doorsteps, which could result in the order-by date for Christmas moving way up or two-day shipping options taking more like a week.”
Taking care of the customer must rise to the top
There is no substitute for exceptional service and thus, it may be the most important aspect of retailing. Additionally, as shoppers consolidate their shopping, smaller retailers, in particular, can use service as a differentiator.
With so many people unemployed, I expect discounting to be more important this year than it has been for more than a decade. Shoppers will look for value. But that should not come at the cost of customer service. People want to feel valued by the retailers they use. This is a year retailers need to go out of their way to show customers they care and want to do a good job.
No matter the shopper, no matter the retailer, presents need to arrive on time and retailers need to take care of the customer, especially in these challenging times.
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