Nearly 40% of consumers will buy half or more of their gifts on sale this down.
The pressures of inflation, higher interest rates, high credit-card debt and other factors will moderate spending across the board this holiday season.
Holiday sales will increase an “underwhelming’ 3.0% to 6.0% over last year, lower than last year’s 6.6% growth, according to a global consulting firm AlixPartners.
The company’s annual AlixPartners Holiday Outlook Survey of more than 1,000 American consumers. Also found that 26% of consumers plan on spending less this holiday season than last year. The reductions are significantly more prominent with lower-income households — as 38% of households with incomes under $45,000 said they plan to spend less.
“Higher-income consumers may not be in the best of times, but we see them sustaining their spending through the holidays. said Bryan Eshelman, Americas leader of the retail practice at AlixPartners. “ However, most other consumers, including lower-income ones, will make retailers feel like this holiday is the worst of times. There is a solution, though. This year’s retail winners will be those that are ‘value-right.’ By that we mean those retailers that offer value in categories where consumers are targeting cutbacks.”
The categories that will see the most drastic reductions include home furnishings (with a planned spending reduction is 15% vs. last year), jewelry and watches (also minus 15%), and accessories (minus 13%). Sales reductions in these categories are likely to outpace inflation, leading to a reduction in overall unit sales compared to last year, noted AlixPartners.
In other categories, such as footwear (minus 3%), toys (minus 5%), and apparel (minus 6%), retailers will likely feel less of a pinch.
According to the survey, consumers will target savings opportunities in three key ways:
•Trading Down: 33% will trade down to more affordable brands and retailer private labels.
•Less Self-Gifting: 24% will reduce spending on gifts for themselves.
•Lots of Deal-Hunting: 38% of consumers will buy half or more of their gifts on sale.
AlixPartners expects consumers to trade down from brand names across categories, making it crucial for retailers to meet shifting preferences.
“Retailers need to think outside of the box when it comes to their traditional target audience, understanding that consumers are spending with more discretion, which is often tied to their individual perceived value,” said Andrew Webb, partner in the retail practice at AlixPartners.
Given the savings imperative this holiday season, more than 70% of survey respondents said they will be researching products and prices online prior to purchase. This includes reading product reviews, doing price checks across retailers, and researching gifting ideas through influencers, news sources, and blogs.
As a result, it will be crucial to reach and influence customers via their preferred digital and physical channels during their sales journey, making the most out of every consumer interaction, advised Adam Pressman, a partner and managing director at AlixPartners.
“While this may seem daunting to many retailers, they need to identify and prioritize key use-cases and sales journeys, and keep in mind that when exposed to the right content and products from a brand about one-third (32%) of consumers, according to our survey, will immediately convert,” he said.
Retailers will also have more time this year to fine-tune promotional strategies, noted Pressman. Only 38% of consumers in the AlixPartners survey said they intend to start their holiday shopping before Halloween this year, down from 46% in 2022 survey and 53% in our 2021 survey.
But while retailers are making progress with personalization efforts, there is much work left to be done. Sixty-five percent of consumers said they see little-to-no improvement in companies being able to provide relevant product recommendations.
Recent advances in AI capabilities could offer a solution, according to AlixPartners. Survey results indicate that consumers are most favorable to AI enhancements that improve product recommendations (with only 15% saying they are against such enhancements), provide personalized offers (25% against), and streamline service with virtual assistance (26% against).