23rd Nov, 2022

What does Santa have in store for retailers this holiday shopping season?

man looking at his phone during Holiday Shopping Season

The economy has sent mixed signals throughout 2022. But if you buy into recent forecasts, Santa might be coming down the chimney with solid growth for retailers this holiday season, rather than with a lump of coal. 

Expect some growth this shopping season

Inflation remains elevated in the United States, clocking in at 7.7 percent  YoY—high, though down from its peak of 9.1 percent logged in June. More good news: the unemployment rate remains near a historic low of 3.7 percent. Plus, Americans still have $4.7 trillion in savings thanks to pandemic stimulus measures, up from $1 trillion pre-pandemic. All that means there is room for optimism heading into Black Friday, Cyber Monday, and the holiday shopping season. 

Consulting firm Bain forecasts 7.5 percent nominal growth for U.S. holiday retail sales. Bain’s estimates land above the 10-year growth rate of 5 percent and lower than the 13.2 percent recorded last year, and the 9.8 percent logged in 2020 (though the pandemic years were definitely abnormal).

While things are looking up for retailers, macro conditions can change on a dime. A spike in energy costs or a supply chain disruption could quickly motivate customers to recalibrate their gift budget. For retailers this year, it’ll pay to be agile when it comes to marketing campaigns so you can respond to sudden changes in customer sentiment. 

In-store vs non-store growth will start to balance out

The 2020 holiday shopping season saw an understandable drastic shift in customer shopping behavior away from in-store sales, which grew just 2.1 percent. Consumers, wary of Covid-19, opted to do most of their holiday shopping online, driving a massive growth of 7.7 percent in non-store (ecommerce and mail order) sales. Fast forward one year and the trend reversed, thanks to vaccine campaigns. In-store sales ballooned to 10 percent growth and non-store sales dropped to just 3.2 percent. 

Where does that leave retailers in this third holiday season since Covid-19 began? Researchers predict consumers have gotten their fill of in-person shopping and will embrace ecommerce again—though not as much as they did in 2020. Bain estimates that of the 7.5 percent nominal growth forecasted this season, 4.12 percent will come from ecommerce and mail order sales, and 3.34 percent will come from in-store shopping. 

Despite the fact that online shopping is expected to grow faster than in-store shopping this year, marketers must remember that people still spend most of their money in person. Bain sees in-store sales reaching $660B this year compared to $255B for ecommerce and mail order, bringing in a total of $915B—a potential new record.

This holiday season calls for retailers to take a multichannel approach to driving customer engagement. Optimizing emotional and functional elements across emails, web pages, display ads, direct mail, and social media campaigns will provide retailers with opportunities to not only reach customers, but motivate them to action. 

Be sensitive to anticipated spending by income level

Though forecasts show consumers spending more overall this holiday season, that spending will vary by income group. The Bain Consumer Health Index anticipates that middle income shoppers (defined as households earning between $50K and $100K) will increase spending the most compared to 2021. High income shoppers (income >$100K) will show more moderate growth, followed by low income shoppers (<$50K), who are anticipated to spend only a bit more this year compared to last. 

Inflation affects consumers at lower income levels more acutely because they spend more of their incomes on basic needs like food and fuel, and thus have less ability to absorb higher prices. It tracks that they don’t plan to increase their spending this holiday season, because they won’t have the disposable income to spend.

But it’s interesting to note that according to the same index, high income shoppers report the largest decline in consumer confidence compared to other income groups. It’s possible that the real estate and stock market volatility seen in 2022 shook their consumer confidence more than other groups since high earners are the most likely to own their own homes and invest in equities.

Retailers should be conscious of the price sensitivities of target customers and customize marketing materials accordingly. For brands, personalized communications can help ensure messaging feels on-point and relevant, thereby motivating positive engagement.   

Reach your customers where they are with Motivation AI  

Many variables contribute to who is spending this shopping season, how much they’re spending, and where they choose to spend. Retailers can’t take a one-size fits all approach to engaging with customers, as they’re all experiencing the economic environment differently. To reach your customers where they are and motivate them to click, shop, or choose your brand, you must personalize messaging to each consumer with content that resonates specifically with them. And while this sounds like a Herculean task, it’s made simpler with Motivation AI.  

Persado’s Motivation AI platform uses first-party data and AI/ML to ensure retailers use the right words at every customer interaction. With Persado, brands can find the subject line that gets customers to open that email, or the perfect headline on digital ads to drive customers to an online store. Persado has delivered over 100 million messages, and achieved an average lift of 41% in conversions across customer engagement channels. 

Specific words, punctuation, capitalization, and even emojis can have an effect on whether or not a consumer takes a desired action. Persado can determine what language to use, and what to avoid, to give retailers an edge in increasing consumer engagement as we enter the holiday shopping season. Want to discuss how to adjust your strategy this holiday season to drive engagement despite a tumultuous year? Let’s set up a meeting!


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