Will it be a Blue Christmas for Retailers?Published: December 13, 2007 in Knowledge@Emory
Retailers are anxiously waiting to see how the 2007 shopping season will pan out, as subprime lending, oil and gas prices, and worries about the financial health of the American consumer are making for uncertain times. But, according to Reshma H. Shah, assistant professor in the practice of marketing at Emory University’s Goizueta Business School, the wise marketing tactics of retailers and the American penchant for shopping should save the bottom line for merchants this season. Says Shah, “We are certainly noticing that there are economic issues, especially with the housing market downturn and concerns over adjustable rate mortgages. But I don’t think this is going to impact gift giving in a major way. Shoppers may not use the holiday sales to shop for a deal for themselves, but they are still going to be shopping for their family.”
Shopping as a Past-time
Stores are often dependent on the last-minute shoppers who “get into” the hubbub of the holiday shopping season and the mall as a destination, says Shah. With the menorah and Christmas tree on display and the stores decked out in more holiday finery than ever before, the ambience at the shopping center is an essential marketing tactic for retailers, she notes. “The retailers start their marketing for the holidays at Thanksgiving, and they now know that families look at shopping as an event,” Shah adds. “There’s a change in the mentality. Shopping is a destination, and the malls understand that by providing carriage rides, Santa, carolers, and more. It’s an entertainment option for people, and the extras serve to draw in the shoppers.”
Richard Metters, associate professor of operations management at Goizueta, echoes this sentiment. “It’s unclear how much consumers are really affected by all the extras,” Metters says, “but the businesses are convinced that ‘shoppertainment,’ or including entertainment with retailing, is a competitive edge. For example, Toys ‘R’ Us used to be a big warehouse. Now, the Toys ‘R’ Us in Times Square in New York City has a live Ferris wheel inside of the store for shoppers to ride. Adidas now has retail 3-D ‘innovation centers’ in retail outlets to sell shoes—a long way from ‘Al Bundy’ measuring your foot.”
Given the many worries about a drop in consumer spending, savvy retailers are also playing to every price point, says Shah. “Look at the big stores, like Barnes & Noble, and you will see special sections set up showing signs that say ‘Gifts For Under $20’ or ‘Gifts For Under $10’.” Shah notes that retailers are more than aware of the struggle for the consumer dollar, given current economic trends and the rising number of shopping venues.
Early estimates for the season indicate a bit of a slowdown in the shopping estimates from prior year increases. According to figures from the National Retail Federation (NRF), the Washington, D.C.-based retail trade association, 2007 holiday sales are expected to increase 4%, below the ten-year average of 4.8%—representing the slowest holiday sales growth since 2002, when sales rose 1.3%. Despite the difficult economic times ahead, average 2007 holiday consumer spending is still expected to hit $474.5 billion in 2007. In 2006, holiday shopping totaled $456 billion vs. $436 billion in 2005. Today, the holiday shopping period remains the most critical for retailers, with 20% to 35% of their profits coming from this part of the year, according to NRF spokeswoman Kathy Grannis. Despite the uncertain economic waters ahead, estimates for luxury retailers remain the strongest for any retail sector, according to Grannis.
Forget the Sentiment
Of course, it may be difficult to assess what the standout seller will be this holiday season, as shoppers will continue to redeem gift cards given to them as gifts through 2008. According to the National Retail Federation, gift card sales are ever increasing and are expected to reach $26.3 billion this holiday season. Smart retailers are also offering additional accessibility to their gift cards, allowing consumers to purchase and ship gift cards via mail and virtually, as well as redeem the cards at a store or online.
According to “The eHoliday Study” conducted by Shopzilla.com for Shop.org, over two-thirds of online retailers are giving customers the opportunity to both purchase (72.5%) and redeem (76.6%) gift cards or gift certificates on their websites. Shopzilla.com is an online comparison-shopping service, and Shop.org is the online division of the National Retail Federation. Their study surveyed 2,781 online buyers from November 27 to 29, 2007 and 116 online retailers from September 26 to October 8, 2007. Approximately 32.8% of those surveyed plan to purchase at least one gift card online this holiday season. The survey also noted that while many gift givers will have gift cards mailed directly to the recipient (63.9%), others will have the card mailed to them (25.9%), or have the card sent electronically for the most expeditious delivery (13.5%).
The Convergence of Brick & Mortar and Online Shopping
The emergence and importance of online shopping hasn’t necessarily killed the brick and mortar stores, as originally predicted, but it has reshaped the way retailers do business. According to Shah, merchants understand that they must deliver their items through a variety of channels—online and in stores. The traditional kickoff of the holiday shopping season—Thanksgiving weekend—is very much dependent on online shopping and mall crawlers alike, she notes. And, retailers are responding and catering to armchair shoppers with special online deals on shipping at such sites as the popular CyberMonday.com, as consumers do a portion of their holiday shopping virtually.
According to the survey by Shop.org, consumers are looking around, from online to brick and mortar locations, as they shop for the best deals and the right items for those on their Christmas and Hanukkah lists. The survey notes that online shoppers are “using a variety of Internet resources to shop for holiday gifts this year.” Additionally, “while two-thirds (69.9%) of shoppers have visited a specific retailer’s website to look for gifts, others have also shopped in a catalog or a store (30.9%) or visited a search engine (31.6%) to determine what they wanted to buy online. In addition, nearly one in five people (18.8%) have used a comparison-shopping site to shop.”
According to Greg Thomas, director of research and programs at the Emory Marketing Institute, convenience and value are the watchwords for shoppers this year. He notes, “The cross-channel options make retail shopping more convenient. Being able to shop online at Best Buy and then pick up at the store provides extra convenience, and provides peace of mind for last minute shoppers who worry that they will get the gift in time.”
Value-conscious shoppers are also using the Internet for cost-comparisons of online and in-store items. Thomas points to the rise in popularity of discount online sites, such as Snoopr.net and Slickdeals.net. He notes that both sites are enjoying traction with consumers interested in a way to aggregate deals. Says Thomas, “People who are price shoppers can be segmented well on the net as vendors have the ability to reach them through custom deals and offers on discount aggregation sites.”
And, gift guides on blogs, and in magazines and newspapers, are also enjoying a heyday as savvy shoppers use these guides to quickly find the right deals and the right items. Thomas adds, “Some of the cooler blogs, like Uncrate and Gizmodo, have come up with some interesting gift ideas. Also, online retailers are getting better with their own gift guides.” Retail sites, such as See’s Candies, Red Envelope, Sharper Image, and Brookstone allow shoppers to browse gifts by recipient, by price, and by popularity. He notes, “These guides enhance the ease of shopping for many—making last minute hunts for the perfect gift easier.”
Projections on the Arm-Chair Shopper
Considering the options, the convenience, and the reliance on online shopping, initial predictions for Internet sales this holiday season are good, according to comScore, Inc., a research firm measuring the digital world. According to the organization’s figures, e-commerce spending for the week ending December 7 totaled $4.58 billion in 2007 vs. $3.83 billion in 2006. Interestingly, comScore noted that Thursday, December 6, 2007 became the heaviest online spending day in history with a recorded $803 million in online sales, up 28 percent versus a year ago.
But Goizueta’s Metters cautions us about looking too closely at e-commerce spending before all the numbers are in. “E-commerce is far more affected by post-Christmas returns than traditional retail. Traditional retailers have a good idea as to the percentage of returns they can expect—history tells them. But, as consumers adapt to e-commerce, returns can amplify.”
Returns can certainly be the bane of a retailer’s existence, and it seems online merchants are not immune. Says Metters, “Knowing that clothing or shoes may not be right once they are in your living room, savvy consumers are now buying three or four items with the expectation of keeping only one—that is, they might buy several different sizes and colors of a dress as it appears on the web, and then return all but one. As this practice spreads, return rates could soar, leaving initial sales numbers less of an indication of where things really are.”
So, What’s the Big Draw?
Given the uncertainty, retailers often lock on to pushing the hot new item as a draw to shop online or at their stores. But with no real hot “new” item to get the shoppers out and about this year, says Shah, consumers are likely to gravitate to the old favorites—electronics. Last year, shoppers beat down the doors for the blockbuster video game sellers, including the Wii, Playstation 3, and the Xbox 360. And, while the iPhone is still a relatively new item, the rollout earlier this year does take some of the glitter off of the product, says Shah. But considering the expense of the iPhone, Apple is making a much wiser marketing move and playing up the popularity of the iPod, she says, offering it at a variety of price points and with a variety of features. Shah adds that the iPod and a variety of other electronic offerings will most likely be the hot sellers of the season, as Americans remain devoted to their electronic devices.
Even the elementary school set are being pulled in by electronic offerings, she notes, with electronic teaching aids like Leapster branding their software products with popular children’s movie and TV cartoon characters, says Shah. Traditional toy companies, such as Mattel and Fisher Price, may find the season a bit gloomier, she adds, as they continue to hurt from concerns over lead paint use in their products. She notes, “Traditional toys made by smaller toy makers and ones labeled made in the U.S.A. are going to enjoy a resurgence because of the lead paint scare.”