For many, 2022 has left dark clouds of uncertainty lingering over peak season for the retail and ecommerce industries. As merchants face spiralling costs and consumers experience a tight squeeze on discretionary income, what will holiday sales look like this year?

According to a new global survey by ShipStation, in conjunction with insight market-leader, Retail Economics, global holiday gift spending is expected to be cutback by around $46 billion due to the cost-of-living crisis. In Australia alone, holiday gift spending is predicted to reduce by $1.3 billion or 12.5% year-over-year.

Globally, more than one-third of consumers (34%) are facing financial distress going into the holiday season and three in five (58%) expect to cut back on non-food spending, while nine in 10 (91.9%) businesses prepare to be negatively impacted by rising costs.

Inflation remains the biggest concern for consumers across all markets, followed by uncertainty about the economy and lack of savings, which will undermine Christmas spending. 

The ShipStation Holiday Shopping Trends Report shows how retail merchants can adapt as consumers reconsider familiar channels and test brand loyalty, as price and value quickly become key drivers of spending behaviour.

The ShipStation report identifies five critical areas merchants should focus on to successfully navigate the challenges of the holiday season and beyond.

  1. Define a strong value proposition

The emergence of a more ‘cost-conscious consumer’ means perceptions of value will shift. Many consumers will consciously sacrifice aspects of quality, convenience, and experience for lower costs. 

Recessionary behaviours, such as shopping around for deals and seeking cheaper alternatives, will become more commonplace. This means businesses will have to put value for money at the heart of their proposition to attract customers and preserve loyalty.

Investing in lower prices will be critical. Price matching and offering compelling entry-level price points will help attract customers that are under intense financial pressure. Equally important is understanding how this approach could impact demand across other product lines to limit the cannibalisation of profits.

Achieving a balanced tone with core customer bases, while reaching out to new customers seeking alternatives will help protect and potentially growing market share. An authentic and empathetic narrative will be essential in driving engagement.

Using complex data-driven methods to segment customers and serve tailored messages at the right time, in the right channels, and on the right devices, offers sophisticated ways of reaching new and existing customers. 

For example, values held by Gen Zs and Millennials can be different from older generations. Younger shoppers tend to be more connected, less loyal, more informed, and channel agnostic. Advanced segmentation methods can capture these behavioural characteristics accordingly.

However, implementing a successful retention strategy is equally important. Retailers must promote customer loyalty, particularly across their most profitable cohorts. Offering higher margin products as suitable trade-down alternatives to premium ranges can be a useful strategy for increasing perceived value while protecting margins.

  • Redefine customer experiences

As value for money becomes increasingly important, retail brands will need to understand the extent to which consumers will be willing to make trade-offs in exchange for lower prices. For example, this may come in the form of accepting reduced convenience, quality, or overall customer experience. As merchants look to cut costs to achieve price competitiveness, deeply understanding where they should prioritise efforts will be vital.

A material shift within the shopper channel mix across categories and demographics is expected over the holiday season. For merchants with a physical store presence, it will be important to understand how the squeeze on incomes will encourage more in-store shopping across different customer cohorts.

Many consumers are shying away from online sales in some categories as they try to avoid online delivery and returns costs, inconvenient return processes with refund time lags and impose more self-control on spending. Simultaneously, some merchants have started charging for delivery and returns, weakening the digital proposition as their input and operating costs rise.

With tighter holiday budgets, cost-conscious consumers disproportionately value immediate access to products in-store. Retailers who provide customers with visible stock availability to help manage expectations around promotions and pre-ordering opportunities, will be able to leverage an advantage here. 

  • Data, insights and personalisation

Capitalising on opportunities from shifting consumer values requires advanced data analytics to convert big data into actionable insight. Data harvesting through social media ‘listening’ or AI-driven insights, for example, will be critical to gain a competitive advantage.

Using data science (AI, machine learning, and analytics) to mine behavioural insights for personalised marketing strategies leading up to the holidays could be the determining factor between success or failure. Using big data to drive sophisticated marketing strategies that engage customers by serving them relevant content at the right moment, in the right channel, will be vital. 

A detailed understanding of the cost-attribution and revenue allocation model is necessary. This includes accurately calculating the return on investment (ROI) to maximise budget efficacy.

As more cost-conscious consumers emerge, loyalty scheme benefits will become more valued and integrated into consumer behaviour, therefore influencing how and where consumers shop. 

  • Evolving operating models

Partnerships need to be explored to secure winning strategic alliances. This could involve partnerships between pure online and store-based merchants, or aligning with logistics experts to manage online returns more efficiently. 

Retailers who continually explore potential partnerships will be better-placed to cope with holiday demand as they ‘piggyback’ off existing infrastructure. This could come in many forms, from automated warehouses to cloud computing, to leverage expertise to drive down marginal costs.

  • Flexible supply chains

Many businesses started planning for the holiday season ahead of last year, reflecting greater uncertainty and supply chains issues.  

Improved strategies are likely to involve using shorter, more flexible supply chains, better equipped to deal with supply shocks; and importantly, address changes in consumer values in response to external conditions. To navigate supply chain disruptions more effectively, businesses should explore simplifying their supply chains, making them shorter and reducing overreliance on single countries.

Businesses should also establish alternative supply sources to enable fast-tracked volume delivery capability. Adopt better, more agile inventory policies to maintain ‘just-in-time’ strategies with established mitigation.

Increased efficiency and predictability will help optimise product mix and range, pricing power, and reduce waste. Also, optimising data flows (from point of sale to predictive ordering) and digital supply chain transparency, can help improve assortment, tailor merchandise for regional variations, and adapt pricing.

At the final stages of the supply chain, consumer expectations for cheap and speedy delivery have become normalised. Consistently achieving these objectives will require investment towards more automated distribution centres and micro-fulfillment hubs to meet demand at scale.