How Retailers Are Preparing for Cash-Strapped Holiday Shoppers

The biggest challenge for retailers this holiday season will be chasing cash-strapped shoppers.

The consistent uptick in prices for everything from groceries to fast food could also hit retailers, who often pull out big deals to win key holiday sales, according to retail experts.

Research firm Mintel found that 64% of consumers surveyed want to spend the least amount of money possible during this year’s winter holiday. And 54% plan to shop for fewer gifts than a year ago.

While total retail sales have grown modestly this year, the growth is primarily coming from value-focused retailers like T.J. Maxx and Costco, where people are looking for deals, said Marshal Cohen, chief retail advisor at Circana. The CNBC/NRF Retail Monitor, a joint report from CNBC and the National Retail Federation, found that total retail sales in July were up 0.92% year-over-year.

“This will be the year where we think about holiday from a value perspective,” Cohen said. “The consumer has clearly shown the world that they are looking for better value—they’re not looking for the lowest price but about making their dollar go as far as it can.”

Cohen expects retailers to crank up the number of deals offered between November and December. While those deals won’t offer shoppers deeper discounts, they will be more frequent to encourage quick spending, he said. 

But these promotions don’t necessarily get people to spend. “Promotions don’t have the same impact that they have in the past,” he said.

Plus, an increase in promotions can dent retailers’ profitability, said Steve Dennis, a former retail exec and president and founder of SageBerry Consulting.

“The profitability of that is often pretty questionable, and retailers need to be careful to avoid the proverbial race to the bottom,” he said. 

In-store shopping is back

The growth of online sales during Black Friday and Cyber Monday, particularly at Amazon, has caused some consumers to pull back on in-store shopping. But with shoppers spending less money, Cohen expects retailers to heavily push people toward shopping in stores this year. Unlike ecommerce, retailers can try to drive sales of impulse items in stores. 

“We will see the return of doorbusters,” he said. “You will see online and store retailers be very aggressive.”

Retailers are also pushing in-store sales because of the growing costs of returns from ecommerce orders. Amazon, Walmart, and Macy’s have cracked down on return policies that don’t allow consumers to return too many items—partly because retailers lose significant amounts of money from shipping products that are later returned. Cohen expects retailers to limit how many products people can buy online.

Still, many consumers turn to ecommerce because it allows them to more easily compare prices across retailers, using browser extension tools like Honey or Rakuten, noted Brittany Steiger, principal retail and ecommerce analyst at Mintel. 

“A deal-seeking mentality definitely has the potential to shift more holiday shoppers toward ecommerce,” Steiger said. 

According to the firm’s research, 63% of holiday shoppers say they get better deals online versus in-store, and 69% prefer to shop online during sales events like Black Friday.

Ecommerce will drive low-price products

For several years, ecommerce retailers have consistently begun running holiday deals earlier in summer and fall to capture early holiday shopping.

Expect those promotions to start even earlier this year with consumers spending less, said SageBerry Consulting’s Dennis.

“If you think it’s going to be a challenging holiday season, then you move early because consumers only have so much to spend,” he said.

In terms of what gifts people will be buying online, brands can expect to see high sales of low-price commodity products that people don’t need to see in a store to buy, like coffeemakers. “It’s search-driven, not discovery-driven,” Dennis said.

And Amazon’s dominance in ecommerce is likely to continue. 

“So many people are locked into the Amazon ecosystem,” Dennis said. “Because of that behavior, sales tend to be in the lower-price range.”

One way retailers will likely attempt to differentiate those discounts is through increased personalization, noted Mintel’s Steiger—another strategy that Amazon pioneered that omnichannel retailers are clamoring to mimic.

“Retailers are growing their arsenal of tools with AI and retail media networks that allow them to better tap into shopper data to further optimize the experience,” Steiger said. “We’re going to see a lot more targeted, personalized offer messaging that moves beyond blanket promotions and discounts.”

This article has been updated to reflect the correct spelling of Brittany Steiger’s name.