Consulting firm AlixPartners is projecting a 3% to 6% increase in sales this holiday season, down from last year’s 6.6% growth.
Though consumers have remained resilient in 2023, inflation, higher interest rates, and higher debt levels will pressure holiday spending this season.
The firm’s annual holiday outlook survey – which polled 1,000 US consumers – found 26% plan to spend less compared to last year, with 38% of households earning under $45K planning to spend less.
“Once again, we are going to see the Dickens classic—A Tale of Two Cities,” said Bryan Eshelman, Americas leader of the retail practice at AlixPartners. “Higher-income consumers may not be in the best of times, but we see them sustaining their spending through the holidays. However, most other consumers, including lower-income ones, will make retailers feel like this holiday is the worst of times.”
This is logical, since lower-income consumers have seen a larger proportion of their income eaten up by runaway inflation in rent, food, and transportation. Higher-income consumers would presumably have money tied up in real estate and other investments that wouldn’t feel the same sting from the inflation crisis.Consumers will target savings in three ways. Thirty-three percent of consumers told AlixPartners they will trade down to more affordable brands and private labels; 24% will reduce spending on themselves; and 38% will buy half or more of gifts on sale.
Some item categories will see sharper declines than others. Home furnishings, jewelry and watches, and accessories all have planned reductions of approximately 15% compared to last year. Sales declines in these categories are likely to outpace inflation, resulting in an overall decrease in unit sales compared to 2022.
To aid in their savings imperatives, nearly three quarters of consumers plan to research products and prices online prior to purchase. This opens the opportunity for effective targeted advertising and promotions.
“It is 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,” said 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.”
Though retailers are advancing their personalization efforts, 65% of consumers say they have seen little-to-no improvement in companies being able to provide relevant product recommendations.
Sourced from Consulting.US