Will the 2020 Holiday Season Be Boom or Bust for American Retailers?

We’re living in unprecedented times. Consumer behaviors and shopping habits are changing dramatically, leading us to a “new normal” in the soft goods sector. The decisions being made by the major brands are make-it-or-break it, measured by whether they can survive to the other side of the pandemic.

Key to navigating these coming months of uncertainty is an understanding of why consumers make decisions. The retail survivors will be those whose predictions are best placed. Based on our discussions with soft goods retailers, we've accumulated a best-of list, reflecting the best insights we’ve seen. Our hope is that it will contribute to the recovery of the sector. In the past decade, more than 70 percent of U.S. economic growth has been attributed to consumer spending, with retail providing more than half of that growth. It's critical for our economic health for retail to survive the pandemic.

1. Expect Q4 to be a promotions frenzy.

We expect significant competition for share of wallet given that it’s largely a zero-sum game. Virtually every retailer is planning to advance the start of the clearance season. Amazon’s Prime Days on Oct. 13 and Oct. 14, its version of Black Friday, kicked off a period that feels like perpetual Black Friday. We’re advising our retail clients to focus their promotion efforts on customer acquisition. Targeting customers with potential high lifetime value (LTV) should be the cornerstone of deal-targeting strategies, particularly during the remainder of 2020.

2. Double-down on online sales in Q4.

Our analysis of consumer behaviors indicates great reluctance to in-store shopping. We don't believe in-store shopping will significantly recover in the apparel and cosmetics categories for the balance of 2020. Consumer spending capacity for the 90 percent who remain employed is at an all-time high. They're spending less on gasoline, commuting expenses, restaurants, travel and entertainment, and the excess cash is available to be spent — although we believe much of it will flow to online venues.

3. Improve, don’t increase, your promotional emails.

A troublesome trend we’re observing is that many brands are increasing their email frequency without a focus on creating offers and content that are relevant to individual customers. The net result of these untargeted emails will inevitably be the degradation of brands’ email lists. Email is still the lowest cost promotional medium, and is deserving of the investment in personalized offers. Brands will find consumers to be more responsive — both immediately and over the long term — if they improve email message relevance.

4. Upgrade your programmatic advertising strategy.

Advertising price increases on Facebook and Instagram are expected to hit record highs in the fourth quarter. Since their advertising model is based on an auction concept, it will likely start to feel like 10 desperate bidders for every available click. Retailers should consider deepening their focus on programmatic advertising, which can expand reach, diversify media mix, and provide a hedge to Facebook’s increasing ad prices. As the ability to create customized target audiences has advanced in the past 12 months, countless brands are bringing programmatic advertising in-house given the critical importance of developing competence in precisely targeting customers for acquisition.

5. Dynamically adjust your strategy when promoting on-sale merchandise.

A consumer identified as a Perry Ellis customer might become a Ralph Lauren prospect when Polo products are on sale. Price is an important driver, and brand repurchase rates are usually lower during sales. We advise retailers to target consumers based on their established tastes rather than on previous brand purchases. Our data indicates that consumers are generally brand indifferent at the product level, but they're very consistent when it comes to staying within their demonstrated tastes.

6. Focus on staffing as a critical element for brand survival.

Now is the time to add deeper digital marketing expertise to your team to prepare for the new normal. Furloughs and cutbacks have created opportunities for brands with the capability to hire. Hiring staff with intimate knowledge of the programmatic advertising ecosystem as well as acquisition targeting should be a top priority. These skillsets will continue to prove more important in the coming years, particularly for soft goods retailers.

7. Collapse your omnichannel into your customer channel.

Consumers don’t think of themselves as mobile, online or in-store customers. They’re largely indifferent to where a purchase is made; they simply view themselves as one of your customers. They expect you to treat them as a single known customer, regardless of whether they choose to switch among direct channels. Therefore, you need to get your cross-channel data and information sharing under control. For example, today’s savviest retailers are instantly adding in-store purchases to mobile apps by using credit card account numbers as a pseudo customer identifier. 

8. Make your mobile app part of the shopping experience, not a mobile version of your store.

Millennials and Gen Z now represent a larger population than baby boomers and Gen Xers. If you survey them on what they want while shopping in-store, they won’t say helpful sales clerks. Instead, they’ll say they want a powerful mobile app — and to be left alone. They want to be empowered with information, not targeted by salespeople. Be sure to respect this desire through the customer experiences you’re creating, both in-store and through your app.

Sephora has set an excellent standard for integrating its mobile app into the in-store experience. When a shopper sees a cosmetic product in-store, she can do a virtual try-on of the product using the app, where she has already uploaded a photo for product overlay purposes.

Likewise, Home Depot has done impressive work adding in-store navigation to its app. If you search for a product using the Home Depot app, it will tell you the precise aisle and shelf location of the product, as well as how many remain in-stock. Home Depot isn’t worried about consumers “showrooming.” Rather, the company is interested in helping consumers navigate its massive stores.

2020 has already been a rough ride for many retailers, and it’s not over yet. We’re optimistic about the eventual recovery, which will surely be more online, more data driven, and require building new institutional skills and capabilities. While disruption and change require investment and risk, we should remember Ben Franklin’s advice: “When you’re finished changing, you’re finished.”

Rob McGovern is CEO of PreciseTarget, a data company that profiles the retail buying taste of every U.S. consumer.