After a year of modest sales growth, retailers face a critical holiday sales season. The big question on everyone’s mind: Will consumers—whose spending habits have challenged efforts at curbing inflation—finally pull back?
Although shoppers are feeling better than they were this time last year, general consumer sentiment about the US economy is one of uncertainty. That means there are no guaranteed wins for retailers as consumers decide how much to spend through the remainder of the holiday shopping season, which can represent up to 40 percent of sales for discretionary retailers.
Some consumers will trade down, while others will splurge. Whatever their holiday shopping strategy, retailers are finding ways to connect with their customers. Some businesses emphasize membership and loyalty programs, which come with discounts and early access to deals. Price match guarantees and widened return windows—of up to four months in some cases—are other strategies retailers are implementing. These purchase incentives, however, are only one part of the equation: retailers, if they haven’t already, should also invest in an improved supply chain and omnichannel experience to provide greater convenience to shoppers.
Retailers have put many of these strategies to work in past years, but in a challenging environment with high stakes, will they be enough to meet consumer expectations while also proactively managing store costs and fulfillment expenses?
This article presents findings from McKinsey’s ConsumerWise team and our latest Consumer Pulse Survey, which outline when consumers will shop for the holidays, how much they will spend, and what matters most to them during this time. We also recommend four actions that retailers could consider to win consumer spend through the holidays.
The survey was in the field from October 17 to October 19, 2023, and collected responses from more than 1,000 consumers in the United States (sampled and weighted to match the general US population, ages 18 to 74). These insights build on the work we have undertaken since March 2020, when we began to regularly conduct consumer surveys and combine our research and analysis with third-party data on US spending to glean insights into how consumer sentiment has shifted since the beginning of the COVID-19 pandemic.
Some consumers will trade down, while others will splurge. Whatever their holiday shopping strategy, retailers are finding ways to connect with their customers.
In response to this year’s holiday shopping trends, we recommend that retailers consider the following actions. These actions extend across the end-to-end value chain and can help retailers get products to consumers in a quick, seamless, and cost-effective way.
- Inspire beyond promotions. As consumers grapple with whether to splurge or save this year, retailers have an opportunity to inspire their customers through storytelling. Focusing on the experiences that come with a purchase—such as crafting for the holidays, setting a beautiful table for family gatherings, or indulging in self-care—may motivate purchases more effectively than relying solely on discounts. To achieve this, retailers should tailor their communications by channel. For example, video content on social media that highlights the benefits of a product may resonate most deeply with consumers who are comparison shopping.
- See demand generation through the “ninth inning.” As shopping journeys are becoming increasingly omnichannel, retailers should meet customers where they are to capture them throughout the holiday shopping season. Retailers are using new technologies, such as AI, and communities, such as store employees and micro-influencers, to deploy curated and personalized content online and at scale. In-store experiences can be bolstered by digital enhancements, such as augmented reality apps and cashierless shopping. Meanwhile, live stream shopping is also gaining traction, especially with younger consumers.
- Personalize promotions for consumers. Leading retailers focus on targeted pricing and personalized offers to deepen customer loyalty, based on a comprehensive view of individual customers. This requires having a baseline understanding of when and what consumers buy and their sensitivity to price and promotions. As the holiday shopping window extends over a longer time period this season, a focus on driving customer loyalty is key. Targeted and personalized offers may also enable retailers to drive inventory sell-through while capturing incremental sales and profit.
- Continue to optimize the supply chain through January. Leading retailers will take a holistic view of their supply chains as they operate through the remainder of the holiday season, balancing both cost and service level. Online fulfillment, which includes last-mile-delivery cost optimization and “buy online, pick up in-store” promotions, will be a major focus area. Even with a focus on online fulfillment, retailers should consider holistic impact. For example, can the holiday promotion calendar be synced with parcel carrier volume commitments to ensure service at the lowest possible costs? Can more orders be fulfilled from stores to move through inventory with the greatest markdown risk? Finally, consumers remain concerned about product availability and shipping times, so we expect winning retailers to build trust by providing transparent communication about shipping dates and executing deliveries reliably through December.
As the holiday shopping window extends over a longer time period this season, a focus on driving customer loyalty is key.