Analysts Predict A Strong Holiday Shopping Season Despite Economic Troubles—And Offer Tips On How Brands Can Prepare For It
With the second half of the year just getting underway, retailers and beauty brands are busy readying for one of their briskest trading periods, but it may take more than usual to triumph this Black Friday and Cyber Monday. From soaring inflation to recessionary fears, inventory struggles and labor cuts, they’re grappling with a plethora of economic and supply chain challenges.
Following last year’s retail boom, 2022 has been a mixed bag for retailers so far. Mass-market giants like Walmart and Target are hoping for big wins this holiday shopping season to offset losses that have darkened their forecasts. Retailers such as Ulta Beauty, Nordstrom and Macy’s that have gained the most from brick-and-mortar’s resurgence and shifting consumer demand will be looking to keep the momentum going.
Small stores and brands are facing perhaps the most significant financial threats going into the holiday shopping season. In a recent poll of 4,392 small business owners by small business referral network Alignable, 47% revealed their businesses are at risk of closing by the fall. Specifically, 59% of small retailers reported they believe their businesses are in jeopardy of closing by the fall, and 50% of them said they’re cutting back on inventory orders for the fourth quarter.
Against the backdrop of the tough macro environment, we asked 7 retail analysts, consultants and supply chain specialists the following questions: How do you predict Black Friday and Cyber Monday will perform for retailers? How would you advise beauty brands to prepare for this year’s holiday shopping season?
- Marie Driscoll Managing Director of Luxury and Fashion, Coresight Research
Inflation is fast becoming a fact of life in the U.S. impacting such spending choices as what to buy and where to buy it. Despite the rapid rise in the consumer price index, more than three-quarters of consumers across the income spectrum (less than $50,000 household annual income to more than $100,000 household annual income) plan to spend the same or more on back-to-school in 2022 versus 2021, according to a recent Coresight Research consumer survey.
Back-to-school is frequently seen as a harbinger of holiday season performance, so it’s likely that consumers won’t shy away from spending this coming Black Friday and Cyber Monday.
While the macroeconomic backdrop is mixed, a strong labor market with unemployment near a 53-year low is a plus entering the second half of 2022. The recent modest drop in the price of gas is another plus.
We doubt we will see another consecutive double-digit increase in holiday sales in 2022 despite the impact inflation could have on the seasonal spend as consumers continue to increase discretionary spending towards travel, services and experiences.
Beauty, as an affordable luxury, is well positioned to navigate the macroeconomic forces as they are. With tried-and-true marketing strategies such as gift-with-purchase (GWP) and purchase-with-purchase (PWP), the gift giver is rewarded with a gift of his/her own and likely to be a plus in an inflationary environment. New product launches, gift sets and fragrances are easy choices for the gift giver.
Beauty brands need to keep their assortments exciting. Adding an NFT as a twin product for use in the metaverse to accompany a physical product is a new twist on the GWP and bound to bring in the young millennial and gen Z shopper.
- Wizz Selvey Founder and CEO, Wizz&Co
The retail cycle for the last two holiday periods has been anticlimactic. Even though the cost of living will be on many minds, there will be a lot of optimism around this Christmas, as people want to do things, be with family and friends, or go away.
People will be thinking about connection and experience. We will see consumers falling into two camps: "budget-ers" (gifts at certain price points, like under $10/$30) and "splurge-ers," who want to go out, experience and treat their loved ones this year.
Even within the "budget-ers," people may reprioritize spending, choosing fewer people to buy for or clubbing together for a secret Santa-style gift so they have fewer people to buy for but still give something meaningful.
With supply chain challenges top of mind, I anticipate there will be some early Christmas shopping to buy the perfect gift, as there may not be as much left if it's left to the last minute. This is an opportunity for brands and retailers to encourage early shopping to ensure they can get what they want for their loved ones. It is exciting, as we could see a move from last-minute shoppers to early planning in some instances.
Predictions for Black Friday and Cyber Monday for gifting trends are focused on price points, under $5, $10, etc., as well as unique gifts, experiences, stocking fillers or smaller more meaningful gifts. This time of year is also a great opportunity for self-purchase if there are savings to be made.
Customers will be mindful that there may be more inflated prices next year, so if they know they consistently use a product, there is an opportunity to stock up a discount before there may be a price increase.
I advise brands to encourage customers to think about meaningful purchases. Be transparent about stock levels if you anticipate running out of your bestsellers, and don't discount these items if you don't need to. It is better to keep low stock items at full price and not have a shortage in the run up to the holidays, which can be a peak trading time.
Blanket discounts are not always necessary, so having a tiered approach can be more profitable in the long run. Brands that can really provide value and transparency for customers and show they care to combat the uncertainty will do well.
- Neil Saunders Managing Director, GlobalData
Regardless of what economic challenges present themselves, the holidays are never cancelled. Consumers are always determined to enjoy the season and to splash out on both themselves and others. Back Friday and Cyber Monday are the kickoff to the season and, even with all the stresses and strains of this year, will remain big events.
Indeed, with inflation eating into consumer finances, there is a case to be made that, this year, more people will be on the lookout for the bargains and deals that Black Friday and Cyber Monday have to offer. For retailers, including beauty players, this means having some eye-catching headline offers is important.
While trading around Black Friday and Cyber Monday will be robust, if consumers are more constrained the events may be more of a case of pulling spend forward rather than generating incremental revenue. This also ties in with the trend of people starting holiday shopping earlier to spread the cost and ensure that they get everything they need on time without last minute hiccups. In a way, this makes participating and grabbing a slice of market share early on even more important than ever.
Specifically for beauty, it is also critical to consider consumer needs. Beauty is a big gifting category, but it’s also something that many purchase for themselves over the holidays as they gear up for social events, family gatherings and parties. All these things will be in the ascendancy this year as we continue to emerge from the pandemic. Marketing around Black Friday and Cyber Monday should reflect these needs.
The final thing to say is that, important as Black Friday and Cyber Monday are, they are not the only trading dates in the calendar. Beauty retailers need to keep the excitement going in the run up to the end of the year with special events, product promotions and interesting offers on an everyday basis. In this environment, stimulating the consumer and persuading them to spend is more vital than ever.
- Inna Kuznetsova CEO, ToolsGroup
While inflation always forces consumers to limit spending and look for bargains, it’s important to note that the retailer’s supply chains can be a huge differentiator. Customers stay with retailers who can deliver in time and have the right assortments—sizes, colors, features—of the products they want.
Amazon discount events certainly attract attention for all these reasons. During the holiday season, when shopping is highly time sensitive, the ability to better predict what inventory is going to be in demand can trump the price factor and might be the difference between shoppers remaining loyal or turning elsewhere.
Taking an AI approach to demand planning, replenishment and inventory management as well as dynamic fulfillment will help retailers and brands make sure to have the right inventory in the right place and distributed in an optimized way. This can form the backbone of a strategy for attracting and keeping customers. Longer lead times due to manufacturing and shipping delays make it very difficult to meet the changes in beauty trends, seasonal and weather impact on consumer preferences, and inflation pressures.
Beauty brands need to look at their supply chains in a holistic manner, from production to sale, and constantly adjust to changes in consumer demand to avoid bull whip effects or inability to fulfill an order. At the same time, they’ll avoid losing control of their working capital as a result of carrying the wrong inventory.
- Jonah Ellin Chief Product Officer, 1010data
There is still considerable uncertainty in the supply chain. Retailers have been prompted to buy early to stock up for the season. With higher inventory on hand, we envision many retailers and brands jumping the gun starting sales before Black Friday to win the basket as concerned consumers endeavor to shop early before “it’s all gone.”
With inflation being the word of the year in 2022, the theme of the holiday season for all but affluent shoppers will be affordability. Luxury and prestige brands are likely to hold up well with affluent shoppers, but miss with those who stretch their wallets for the special occasion.
We’d recommend brands look at creating value at affordable price points for the audience they are targeting, making it clear early in the season that their brand is a splurge customers can afford even in this trying inflationary period.
- Adam Pressman Managing Director, AlixPartners
Brands should prepare by engaging with customers well in advance of Black Friday and Cyber Monday to build customer relationships and try to create more than just "one-and-done" customers. No doubt there will be deal seekers, and if current market conditions persist, promotions and discounts will likely be prevalent.
Understanding the role of your digital and physical channels and how they work together in what we at AlixPartners call a "digital-first retail" world will be critical, whether it’s improving discovery and acquisition online, mobilizing in-store activations, releasing exclusive access and products to VIP customers, and/or leveraging stores for a key role in fulfillment. Understanding those interactions will critical.
Brands that think through data strategies, provide timely support to help customers complete their transactions, deliver flawless execution, and positive post-purchase experiences can build trust that results in more than just a single holiday-related transaction.
- Andrea Szasz Associate Partner, Kearney
There are a few elements that we can predict for the upcoming holiday season within the consumer beauty space:
- Sustained uncertainty whether consumers will be back at the store amid COVID variants and increased online shopping penetration.
- Continued challenges in digital advertising following digital media price inflation, unprecedented online market saturation, and inability to target brought about by privacy laws.
- In times of uncertainly and turmoil, consumers tend to steer away from innovation and experimentation, and stick to the brands that they love.
While we know that beauty has been historically a recession-proof category, beauty brands will be pressured to:
- Increase supply chain service, agility and flexibility vis-à-vis retail and online channels to adapt the sustained market and supply disruption.
- Focus on building community and authentic connections to stand out in the overcrowded online “aisle” and build brand equity with consumers.
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