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Shoppers have their lists. Brands and retailers have their best offers at the ready.
The heart of the holiday shopping season is getting underway as the Black Friday-Cyber Monday (BFCM) stretch of Thanksgiving weekend arrives.
As has been the case for most of the last decade, consumers will be increasingly be shopping online this holiday season as they search for deals, conduct research and take advantage of a wider selection of colors, sizes and styles that are available through the internet.
Even in a year that has seen a push back toward in-person experiences and injected uncertainty throughout the economy, ecommerce is still poised to continue playing a bigger role in the holiday rush. According to the latest BOXpoll from shipping company Pitney Bowes:
- One in four consumers plan to shop online more during BFCM as compared to last year.
- That outweighs the 15% of shoppers who plan to shop online less.
- In particular, ecommerce is gaining traction among younger shoppers, as half of Gen Z and one-third of millennials plan to shop more online.
- Of those who do less online shopping, about 70% are cutting back on spending in general, while only 25% voiced a distinct preference for in-store shopping.
Let’s break down the dynamics behind this data:
Inflation feels, not inflation ordeals
It's a reminder that ecommerce is still growing, even as the so-called pandemic ecommerce boom recedes and inflation erodes discretionary budgets. In part, the fact that more online shopping is expected this year can be attributed to continuing strength in consumer spending. While inflation continues to be at 40-year highs, Pitney Bowes is finding that overall spending isn’t slowing down, said Vijay Ramachandran, vice president of go-to-market enablement and experience. They’re backed up by an October retail sales report from the US Commerce Department that showed a bump in spending during a month filled with early holiday shopping events.
Heading into the holidays, consumer spending levels in ecommerce may be more than 10% higher than last year, which would bring gains above the current inflation rate of 6-7%.
“The mindset this holiday seems to be more about inflation feels than inflation ordeals,” Ramachandran said. “Instead of pinching pennies, consumers are out to get more for their dollar. And the early and aggressive holiday promotions by retail leaders like Amazon, Walmart, Target, and many others — driven partly by excess inventory — is creating the sense among shoppers that there are even better deals out there.”
The deals available in what is expected to be an exceptionally promotional environment could even lead prices to reshape what consumers buy. Just over half of consumers (51%), three-quarters of Gen Z and two-thirds of millennials said holiday markdowns online will incentivize them to buy more of some items than usual. Top categories wher consumers plan to take advantage of BFCM deals include electronics (52%), apparel and footwear (50%) and toys, crafts & hobbies (45%).
Convenience means anytime, anywhere
The continued shift to more online shopping come is also notable because it comes in a year in which one of the biggest retail themes is the return to stores. With the lifting of pandemic restrictions in the first half of the year, people were eager to get back out and refresh closets for in-person work, social events and travel. But heading into the holiday season, there are signs that online shopping is not only poised to hold its ground with consumers, but in fact to gain favor.
According to the BOXpoll results, half of consumers plan to stick to their routine from last year, but the percentage of those buying online more this year (29%) outweighs those shopping online less (20%). Gen Z and Millennials are signaling an even larger net increase in online shopping, as well.
It underscores that getting out of the house more doesn’t necessarily mean in-store shopping. With mobile devices and online shopping experiences that are increasingly woven into their increasingly digital lives, shoppers are turning to ecommerce while on the go. At the same time, the in-store experience is becoming more digital. Many brick-and-mortar stores have pickup options. There’s still some peace of mind that comes from the knowledge that a can receive an item right when they buy it, but now some retailers allow them to check if it is in-stock before going to the store. This all changes how people think about convenience.
“Consumers no longer equate ‘convenience’ online to ‘fast delivery.’ If shoppers need a product quickly, they’ll run out to a store,” Ramachandran said. “This holiday season and heading into 2023, consumers define convenience as the ability to shop anywhere, anytime, and according to their own schedules.”
So the question for the years to come may be less about pitting online versus in-store. Holiday shopping is a time when the interplay between the two will be on display.
“This new definition of ‘convenience’ can play out the moment the idea for the perfect holiday gift hits a shopper while they’re on their lunch break at work,” Ramachandran said. “When it comes to Black Friday, it can look like being out of town for Thanksgiving but placing orders online that will arrive when they return home, rather than battling it out for a parking spot and the last PS5 doorbuster.”
With this shift, shoppers also want to have logistics options that will allow them to fit delivery into their lives. Their expectations are oriented around accuracy and follow-through, as opposed to being able to shave more seconds off the delivery time. Pitney Bowes is seeing a shift from ‘fast and free’ delivery, to a focus on scheduled delivery. In this mode, a consumer can select a specific delivery date at checkout, and have confidence they’ll be home when the purchase arrives.
“In a market where online ‘convenience’ is defined as ‘anywhere and anytime,’ what actually matters is a choice of specific date/time. Consumers are busy. They’re getting out of the house more than ever,” Ramachandran said. “They’re traveling—more now than even before the pandemic. That means that an inaccurate delivery estimate—even when a delivery shows up early—is an inconvenience. No one wants to leave a package sitting on the porch or in the mailroom any longer than necessary.”
With the supply chain crises of the last two years, consumers were focused on whether items would be available at all, then whether they would be able to have them in time.
For the 2022 peak season, the focus is moving toward whether items will arrive on time. With more people planning to shop online, there’s plenty of opportunity for brands and retailers to gain new customers and win loyalty from existing ones, despite all of the gloomy economic talk. Just don’t leave them waiting.
Trending in Economy
The retailer's marketplace is expanding quickly.
When it comes to ecommerce growth, was the pandemic a blip or a new trendsetter?
As we move further from the height of COVID-related closures, it’s a question that will start to be answered through the lens of history.
So far, the narrative of ecommerce growth in the U.S. from 2019-2022 has gone like this: Ecommerce’s share of overall retail saw a huge spike at the height of the pandemic in 2020-21, when goods in general were in demand and online shopping was necessary to preserve health and safety. Experts looked out and saw a permanent exponential change in the penetration of ecommerce as a share of retail that would last beyond the pandemic. Then, in 2022, everyone went back to stores and the trendline came back to 2019 levels. Growth was no longer exponential. There was still growth, but it was not happening as fast as during the pandemic period.
With this in mind, it’s worth pointing out that 2023 is the first year that there likely won’t be a pandemic-influenced swing to influence ecommerce growth. It is also a year where demand has suffered challenges amid inflation and interest rate hikes.
So as we seek to determine the importance of ecommerce to overall retail, it’s worth it to continue taking a close look at what growth trends retailers are seeing now, whether ecommerce is remaining resilient amid consumer pullback and how retailers are preparing for the future.
The latest example arrived this week from Macy’s. It’s a fitting one for the times. Overall, Macy’s is seeing a slowdown as consumers pull back on discretionary purchases, with sales declining 7% in the first quarter versus the same quarter of 2022. Digital sales were down 8%.
Macy’s is particularly susceptible to the macroeconomic headwinds that many brands and retailers are facing, as spending among the middle-income consumers it counts as a primary customer base is particularly softening, said GlobalData Managing Director Neil Saunders.
But while ecommerce is slowing overall, the importance it gained to Macy’s business during the pandemic is remaining in place.
In 2019, ecommerce made up 25% of Macy’s revenue, CEO Jeff Gennette told analysts on the company’s earnings call. That jumped to a high of 44% in 2020. By 2022, digital reached 33% of sales after the pandemic boom. In the first quarter of 2023, it remained at 33%. So, while the trend line dipped after shoppers returned to stores, ecommerce share still settled in at a higher post-lockdown point than it was before the pandemic.
This came in a quarter in which traffic was “relatively good” across both online and in-store, Gennette said. It was “flattish” online, and slightly up in stores.
“We do expect that this is the reset year with the penetration between them,” Gennette said. “But we do expect more aggressive growth in digital in the future versus stores as we think about '24 and beyond. And that's going to be foisted by a lot of ideas and strategies.
Over the last year, the retailer has made investments in boosting ecommerce, even as shoppers returned to stores. In a bid to boost the assortment of goods available online, Macy’s launched a marketplace in September 2022 that welcomes goods from third-party sellers.
The marketplace had an “outstanding” first quarter, said Macy’s President Tony Spring, who is poised to succeed Gennette as CEO next year. Gross merchandise value increased over 50% when compared to the fourth quarter of 2022, while the average order value and units per order for marketplace customers was 50% above those not shopping at the marketplace.
Macy’s is continuing to build the marketplace even as it racks up sales. The retailer added 450 brands, ending the quarter with 950 brands.
This is helping to draw in new customers, as well as younger existing customers who are buying more items, resulting in increased basket size.
“We're very excited as to how marketplace is really attracting the Gen Z customer, particularly in categories where it was not economically feasible for us to carry in the past,” Gennette said.
In the end, Gennette said a strong digital and social presence is key to attracting younger consumers. That's a different type of shopper than other age groups.
“We know the younger customer starts first online,” Gennette said. That behavior will still be in place as the generation gets older, and gains more buying power in the process.
Going forward, Macy’s is seeking to expand the model to other retail banners in its portfolio. Bloomingdale’s will open a marketplace in the early fall.
The Macy’s ecommerce trajectory isn’t that different from the wider U.S. ecommerce narrative detailed above. With one quarter of 2023 data, there is evidence that ecommerce share settled out at a higher point after the pandemic than where it started before COVID arrived. There is flattening now, but the retailer is taking it not as a sign of a slowdown, or a signal to change course. Rather, it sees changing consumer behavior as a reason to build for the future.