The Current, delivered daily.
What can holiday shopping results tell us about trends for 2023?
It’s a question many brand and retail leaders are mulling as they review the peak season numbers in the first weeks of January. This week, Salesforce shared data for overall ecommerce sales globally and in the U.S. that bring forward several key insights about how to approach the next year.
The top-line: Throughout November and December, consumers spent $1.14 trillion on ecommerce purchases globally, and $270 billion in the U.S., according to Salesforce. That's a 5% increase over 2021. The cloud company analyzes aggregate data from over 1.5 billion global shoppers on sites using Salesforce Customer 360. This dataset includes 24 of the top 30 online retailers.
The comparison: Salesforce said November sales were below both 2020 and 2021, which saw massive growth as demand for goods and the necessity to order online exploded during the pandemic. However, the overall sales came in above the company’s forecasts.
"Retailers closed out the 2022 holiday season with stronger online sales growth than expected – driven in large part by U.S. demand, steeper discounts on peak days, and BOPIS options," said Rob Garf, VP & GM of retail at Salesforce, in a statement.
Here’s a look at Salesforce’s key takeaways on what drove holiday spending, and what it means for 2023:
The trend: Good deals drove sales
This holiday season was expected to be highly promotional, and it ended up playing out that way. Salesforce observed a 21% discount rate, compared with 19% in 2021. Beauty, skincare, and makeup were the most discounted categories at 29%, while general apparel and handbags reached 27%.
What it means for 2023: While the calendar turned, the tougher consumer environment didn’t change. People are still seeking to stretch dollars as the effects of inflation and interest rates filter out across the economy. Discounts will remain a key tool to convert, but it will be a tricky path for brands and retailers to maintain margins, especially after increasing prices to keep up with inflation last year.
The trend: Returns hit record highs
Salesforce predicted a returns “tsunami” and it seems that it arrived. The 1.39 billion items returned amounted to a 63% year-over-year increase in returns from 2021. In the six days after Christmas, 16% of orders were returned, which was a 5% increase over 2021.
What it means for 2023: The “staggering” numbers offer a sign that consumers are “cautious,” Garf said. One of the behaviors that Salesforce identified during Cyber Week was people returning items after finding a better deal. These types of behaviors will only continue as the economic picture remains difficult. Brands and retailers should be mindful of how returns pressure profits and logistics. As Loop Returns has shared with The Current, there’s also customer expectations to consider, as many have grown accustomed to free and easy returns. That’s why retailers are also rolling out new ways to make returns more convenient like box-free and even returns pickup from DoorDash. Remember: returns are a customer touchpoint, just as much as a logistics function.
The trend: In-store pickup delivers growth
Buy Online Pickup in Store, or BOPIS, was one of the modes to get orders to customers that grew in the pandemic. Even with the return to in-store shopping this year, consumers continued to turn to this method out of convenience. Quick data points:
- Nearly one in five of all online orders were fulfilled via BOPIS.
- Adoption peaked at 35% of all orders on the Friday before Christmas.
- After the window for home delivery closed, Salesforce said that companies with BOPIS grew revenue 7x faster than those without in the final week before Christmas.
What it means for 2023: Even with the return to in-store shopping, ecommerce is continuing to be sought out as a means of convenience. But customers often don’t see channel, and are comfortable moving between both to fit their lives. The staying power of BOPIS over the holidays is a manifestation of this physical-digital crossover. Continuing to pay attention to what customers want and improving the experience will be crucial. Another area to consider: How are brands and retailers merchandising in the store around BOPIS? Remember: A pickup is a visit to the store. What are the options to upsell?
The trend: Social media referrals hit an all-time high
More and more of commerce is being mediated through social channels, where shoppers discover products through ads and content, then complete the purchase through links to brand stores. Traffic referrals from social media grew 23% this holiday season, accounting for 12% of all mobile traffic. The U.S., Belgium and Italy had the most social shoppers.
What it means for 2023: Social is still a key investment area for brands and retailers to drive new traffic to their online stores. In 2022, there was plenty of fretting about broken digital marketing playbooks as a result of iOS14.5 changes to tracking and attribution that hampered the growth engines of advertising on platforms like Facebook and Instagram. Brands experimented with other platforms like TikTok, and even brought back catalogs. But the Salesforce data offers a reminder that social media is continuing to be a primary place to meet brands, and power discovery. The tools and even platforms may change, but the medium will remain, and still has room to grow.
The bottom line: Garf put it this way: "In 2023, retailers must double down on efforts to put the customer at the center of their business with data-driven personalization and efficient operations in areas such as fulfillment, service, and returns."
Trending in Shopper Experience
Microservices architecture allows the company to give retailers ownership over omnichannel software.
With the growth of digital commerce, providing consumer choice is at the center of all of a retailer’s operations.
In recent years, that became especially evident in the area of fulfillment.
Ecommerce made the process of moving an order into place for delivery a crucial function, as the ability to source products close to demand quickly was an imperative.
“Retailers are looking to own more of their fulfillment destiny because consumer expectations have increased,” Chap Achen, VP of product strategy and operations at Nextuple, told The Current on the floor of the NRF Big Show 2023. “Fulfillment is now a competitive weapon.”
As digital operations increasingly blend with the physical store, a host of new fulfillment options are coming online. They can have an item delivered from the store on the same day, or they pick it up. Even a wider offering such as in-store pickup has a host of different choices inside of it. Consumers can pick up an item at a counter, or a locker. They can stop by anytime, or schedule a pickup on Saturday.
While this optionality helps retailers meet customers where they are, it also adds complexity to the systems that run them, and requires operational adjustments to put them in place.
It means the software that powers fulfillment operations must also meet retailers where they are, Achen said. Many retailers have specific setups and processes. They may have a store located in a mall with a nearby distribution center, or a series of small storefronts. At the same time, retailers need to have flexibility with the software that they use so they can provide options to consumers.
For Nextuple, the vehicle to provide this is microservices, which describes a software architecture in which the parts of an application work independently, but are also built to work together. The company harnesses microservices to offer an ownership-centered approach to deploying its software through a product called Nextuple Fulfillment Studio.
“Today, there are only two ways to buy software: [software as a service] or custom building,” Achen said. “You can do it yourself or with a partner. We are a third option. We will help you accelerate your time to market because we've already developed 80% of your requirements, and then we'll give you that as source code.”
The software is composable. Retailers own the source code, and they can iterate. Along the way, they have the ability to swap out components of the software for pieces that enable them to better respond to the needs of customers, if they choose.
It shows how composable commerce is spreading throughout retail operations. A first wave of development applied the approach to the “front-end” of commerce, such as operating an ecommerce store and marketing. With fulfillment software such as Nextuple coming online, there are signs it is being applied to backend operations, as well.
In all, Nextuple offers 14 microservices as part of the Studio, including engines for same-day delivery, storage, inventory management and sourcing.
At the NRF Big Show, Nextuple announced that it is live with five national omnichannel retailers. Together, they have $50 billion in annual revenue and 7000 store locations.
The company is aiming to serve a group of retailers that are widely known, but still looking to hone operations for omnichannel retail. When it comes to fulfillment technology, the retail landscape has distinct tiers.
The largest players have built their own fulfillment tech to power logistics networks that reach across the country.
Name brand retailers with a national presence also want to offer competitive fulfillment, but haven’t made the move to acquire platforms or developed their own software in-house. Typically, they would seek out a software provider that offers a set platform on a subscription model. But the particular needs of commerce require software that powers physical operations with digital tools. That requires a different type of solution, Nextuple believes.
“We want to level the playing field,” Achen said. “We're helping the mid-tier [retailer] compete with Target, Amazon and Walmart.”