Despite contradicting headlines, the 2017 holiday shopping season is anticipated to be the largest on record. The National Retail Federation “expects holiday retail sales in November and December – excluding automobiles, gasoline and restaurants – to increase between 3.6 percent and 4 percent for a total of $678.75 billion to $682 billion, up from $655.8 billion last year.” Whether consumers shop in store or online, several trends will drive this year’s Q4 shopping experiences.
Holiday season is out, always on season is in
In a previous article, I explored 2017’s back-to-school (BTS) shopping trends. I noted that BTS is the longest-selling season of any holiday or shopping event in the retail calendar, stretching three months, with nearly half of consumers beginning BTS-specific searches in June or July. The year-end holiday shopping season is not far behind with many individuals beginning their gift-purchasing in late October. Retailers are also inflating the holiday season as many are setting up Christmas-themed shopping displays early, even weeks before Halloween.
The holiday shopping season is no longer centered on a few key dates and has shifted into a multiple-month period in which retailers are on full display to all customers. This has eroded the importance for special holiday season shopping events such as Black Friday or Cyber Monday and increased the need for retailers to remain consistent throughout the season. One key to success is creating an immersive experience that appeals to all customers: brand loyalists, newcomers and transactional customers.
Managing frictionless holiday returns
Throughout the first few weeks of January, retailers are always busy servicing a surge of holiday returns. The reasons for these returns are numerous.
A consumer may have received an ugly sweater from Grandma that, fortunately, came with a gift receipt. Another consumer may have purchased five dresses ahead of a special event and only ended up keeping one dress.
Many retailers have also trained consumers to want and expect a shopping experience where apparel can be worn and then returned without question. The rise of try-before-you-buy selling models removes barriers for picky and hesitant shoppers. This approach costs retailers money on the front end but creates loyalty and longer-term relationships with customers overall. There is a benefit to brands to letting consumers buy in excess and then return items with no penalty. It may lead to cross-selling or upselling opportunities through apparel experimentation because consumers are less hesitant to try something new if there is an inflexible return policy. Examples of successful try-before-you-buy businesses that have flexible return policies include Trunk Club for clothes, Zappos for shoes, Warby Parker for eyeglasses and Rocksbox for jewelry.
As retailers should expect increased returns in January, they should act now to prepare.
First, retailers should plan ahead to hire seasonal staff beyond the busiest shopping periods throughout Q4. Additional staff to support consumer-facing returns counters, inventory logging and warehousing throughout January is also important.
Second, retailers should ensure that an efficient and effective returns tracking system is in place and that employees are well trained on how to use it. Using appropriate reason codes when products are returned can provide important learnings. Retailers must utilize analytics to identify meaningful returns trends and partner with merchants and e-commerce teams to institute initiatives that proactively reduce returns. Were there certain items that were returned more than others? Why are consumers returning items? Are there certain styles or sizes that were returned more than others? Answers to these questions and insights gained from data have the potential to enhance the customer experience, reduce returns and drive margin improvement. These exercises also provide a valuable opportunity to conduct a post-mortem of how the holiday shopping season unfolded.
Third, retailers should make returning items a simple process. Many e-commerce retailers allow goods to be returned through the mail. However some consumers prefer to return items in-person. This year, we are seeing hybrid models bringing together digital and brick-and-mortar businesses to create new return models. A recent announcement of a partnership between Amazon and Kohl’s brought the news that some Kohl’s stores in Los Angeles and Chicago will accept returns of select items bought from Amazon.com. While a “buy online, return in store” model is nothing new, this news of competitors joining forces this season is something worth keeping an eye on.
Gifts that keep on giving
Subscription businesses are rapidly growing and are positioned to see strong performance as gifts this holiday season. According to recent reports, in the month of April 2017, subscription company websites had about 37 million visitors, a figure 800 percent larger than similar visitor traffic in April 2014. Subscription services capitalize on driving customer experiences. Each month, a consumer receives a new package in the mail and relives moments of surprise and delight.
Subscription companies don’t always create new types of products, rather, they enable consumers to look at purchases in new ways. Receiving a subscription box from the likes of Stitch Fix, FabFitFun or Trunk Club makes the experience less about keeping the material goods themselves and more about creating emotional and fun experiences throughout the year. It also removes the burden for the gift-giver of needing to constantly find new items for every special occasion.
Apparel brands have caught on to the revenue-generating model and are also launching their own subscription services so as not to be outdone by third parties. One recent example is Under Armour’s ArmourBox, a new monthly subscription service launched in October 2017 that sends customers items every month, two months or three months based on individual preferences.
Another successful retail model avoids the cost of ownership altogether. Rent the Runway, Armarium and similar luxury apparel loaners have tapped into many consumers’ desire to always have a new look. Customers of these services never keep the items they receive. This apparel business model is more about consumers having the experience of wearing luxury clothes and accessories and having access to a larger wardrobe collection versus owning apparel that may go out of style or no longer fit one year later.
As the relatively new subscription landscape evolves, retailers should take note of how to leverage this model during the holiday shopping season. A focus on offerings that go beyond a one-time gift and support product experiences over an extended time period can provide more value. While this approach may not drive large upfront top-line growth, it enables loyal customers to directly share their affinity for a brand with friends and family and help steer opportunities for retailers to convert gift receivers into new customers.
The importance of the shopping experience
Consumers have seemingly limitless options for where they can buy gifts this holiday season including online, mobile, in store or some combination thereof. No matter the platform, those businesses that offer joyful and engaging customer experiences will win. Nordstrom is trying a new approach with its Nordstrom Local model. These locations have no merchandise inventory and instead rely on a service-oriented approach offering personal stylists, a nail salon, alterations and tailoring services, in addition to a buy online, pickup in store model. This approach to “shopping tourism” will likely grow as brick-and-mortar businesses keep trying new ways to increase foot traffic and product engagement in stores. Since Nordstrom is one of the first major retailers to offer a “no inventory” store model, the holiday performance of Nordstrom Local is a pilot program worth watching. If the program is successful we can expect to see other retailers to set up their own versions of the concept in major cities next year.
No matter which trends hold true or falter this holiday shopping season, retailers must pay attention to consumer preferences and demands. The true gift for retailers this year will be data gained and lessons learned on how to transform the holiday shopping experience for 2018 and beyond.
Andrew Billings is a principal in North Highland Consulting’s Retail and CPG practice. He has a decade of management consulting experience within retail, apparel and consumer products industries, including wholesale organizations, vertical retailers, manufacturers, department stores and big-box retailers. He can be reached at [email protected].