Merry Christmas! Let’s Make a Deal
With holiday sales gains widely expected to slow from last year's pace, retailers are employing new tactics to help close the deal.
In September, the first sign of this trend was apparent as major retailers offered layaway plans that came without the usual fees for the service.
Since then, they added other perks to coax customers into the store, including generous price-matching guarantees. (Read More: Is It Worth It? A Look at Layaway and Toy Reservations).
Online shoppers also have more options than ever before. There will be plenty of free shipping offers this year, with four out of five online retailers planning to offer free shipping — with conditions at some point during the holiday season. And more than half of all online retailers planning to offer free shipping with no strings attached at some point, according to research from Shop.org, a division of the industry trade group the National Retail Federation.
Focus will also be on making online shopping a convenient tool for the shopper by letting the customer decide if they want to ship their purchases to store for pick-up, including on the same day they order them. lexible online payment options for shopper who don't like to use credit cards, such as PayPal or debit cards, will be more available.
And for shoppers at the store who are disappointed to find the product isn't on the shelf, many retailers are trying to make it easier to order the product at the store and ship it to the customer's home.
This new dynamic isn't lost on the consumer. Shoppers expect a store's sales staff to be able to make adjustments in a product's price or offer some other incentive to seal the deal. According to a Deloitte survey of more than 5,000 consumers, four in ten shoppers expect sales staff to have the power to change a product's price to match one that the customer has seen at another store.
"Consumers have come to expect value at a good price, and the stakes are high for retailers to keep promotions fresh throughout the season," said Alison Paul, vice chairman and leader of Deloitte's retail and distribution practice.
A Long Holiday Season
This year, retailers have a special challenge: there are 33 days in between Thanksgiving and Christmas, three more than last year, and with Christmas falling on a Tuesday this year, consumers have an extra weekend to wrap up their shopping. Retailers will need to hold their attention during this entire time, but if last year is any guide, it won't be easy.
Even though shoppers came out in droves during the 2011 Black Friday weekend to snag the bargains in the stores, the pace of shopping slowed in early December. Many shoppers said they were holding off on their shopping, waiting for bigger bargains. But some retailers began to fret about how sales were turning out and they started cutting prices to spur sales — a decision that can hurt profit margins.
In the end, the 2011 holiday season turned out well. Sales rose 5.6 percent to $563 billion, and that was on top of 5.5 percent growth in 2010. But this year, the NRF expects sales to rise a more modest 4.1 percent. That amount is higher than the ten-year average of 3.5 percent gains, but obviously it is disappointing after two years of stronger sales.
Keeping Their Attention
Holiday sales often can account for anywhere from 20 percent to 40 percent of a retailer's annual sales. That's why retailers such as Wal-Mart, Target and Toys 'R Us tarted their holiday promotions long before Halloween. But despite the news these retailers tried to share, their message had a lot of competition. Consumers were distracted by the U.S. presidential election, and later super storm Sandy, vied for attention, especially in the heavily populated New York and New Jersey where the storm wreaked havoc.
Now, there is much discussion about the "fiscal cliff," the potential tax increases and cuts in government spending that could happen if lawmakers do not resolve budget issues. If the volume of this discussion grows louder and dampens consumer moods, retail sales could take a plunge.
NRF President and CEO Matthew Shay has warned that the automatic tax increases and spending cuts could have "more of an impact on business confidence and consumer spending than any other issue."
"It's imperative that policymakers address the looming fiscal cliff now to give consumers some certainty heading into the holiday shopping season," Shay said, in a press release issued in the way of the U.S. Department of Commerce's October retail sales report.
Consumers Still Upbeat
The good news is that for now, consumers are holding their own. Although many of the early retail analyst forecasts called for holiday spending to rise somewhere between 3.5 percent and 4 percent, more recent forecasts have been a bit more optimistic. (Read More: Survey Says…Merry Shoppers, Shallow Pockets) FTI Consulting, a retail industry consulting firm, predicts holiday spending will rise 4.5 percent.
"Overall, consumer spending trends have been fairly impressive considering the financial anxieties still felt by many Americans," said Bob Duffy, global co-leader of FTI's corporate finance and restructuring practice. "We find consumer spending across a number of product and store categories to be fairly encouraging and anticipate this vigor will continue through the holiday shopping season."
But one element of FTI's forecast may be disappointing for bargain hunters. While prices will remain competitive, the firm expects to see fewer instances of extreme price discounting throughout the season. In order to avoid a race to the bottom, analysts said, retailers need to focus on exclusive products that will encourage shoppers to come to their store rather than their competitor. Otherwise, they are locked in a self-defeating price war.
All this is based on the fact that retailers know that prices are easy to research, and consumers are doing their homework. USAA, a financial services firm, found in their survey that about 56 percent of respondents plan to use their mobile devices — both smartphones and tablets — to compare prices, download coupons and research products while in stores.
"We are living in a world of price transparency," said Jill Puleri, vice president and global retail leader for global business services for IBM. "People are going to price compare."
But retailers are fighting back. Puleri said shoppers shouldn't be surprised to sales clerks at store armed with their own technology, all in the name of helping the shopper make a decision to buy then and there. This means they will be ready to match prices for shoppers, help them order products they didn't find on the shelf, or track down a product review to coax the shopper off the fence.
"This holiday season, it is all about what you can do to save the sale," she said.