2014 Holiday Outlook: Top trends, consumer behaviors and implications for retailers

Price will be the driving factor in most consumers' purchasing choices this year, as the nation's  economic divide affects holiday shopping.

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2014 Holiday Outlook
Top trends, consumer behaviors, and implications for retailers

Contacts
Steven J. Barr US Retail and Consumer Leader +1-704-485-2485 [email protected] Thom Blischok Chief Retail Strategist +1-602-321-9305 [email protected] Byron Carlock Jr. U.S. Real Estate Practice Leader +1-214-938-4062 [email protected]

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About the authors
Steven Barr is PwC’s US retail & consumer sector leader. He has more than 25 years of experience providing assurance services for retail and consumer public companies, business combinations, and internal control and enterprise-wide resource planning information system controls reviews. Thom Blischok is chief retail strategist and senior executive advisor at Strategy&. He specializes in helping retail clients implement a broad range of growth strategies, and helping consumer product goods companies design and execute next-generation collaboration platforms. Byron Carlock is PwC’s U.S. real estate practice leader. Before joining the firm, Byron held numerous senior positions in the real estate industry, including serving as the CEO and president of CNL Lifestyle Properties Inc., executive vice president and chief investment officer of Post Properties, and managing director of Crow Holdings International.

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Executive summary

PwC and Strategy&’s 2014 Holiday Outlook is an in-depth, concise perspective and report that gives a snapshot of the consumer mindset and the potential implications for retailers over the forthcoming holiday season — September through January. The survey, based on a market projectable panel of more than 2,200 consumers across the United States, provides insights to retailers and manufacturers about shoppers’ purchasing decisions and channel preferences. The country’s economic reality is hitting home this holiday season, as shoppers split into two distinct groups: Survivalists (household income of less than $50K/year) and Selectionists (household income of more than $50K/year). Retailers and manufacturers should understand the behaviors and preferences of both cohorts. Survivalists will be concerned about the increasing daily cost of living, while Selectionists will make shopping decisions based on their changing disposable incomes. Methodology The survey was conducted in July and August 2014 by Strategy& and PwC through a highly targeted an online questionnaire. The primary household gift-shoppers who responded represent all key income, ethnic, and age groups in the American holiday shopper community.

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These 10 trends are expected to drive holiday shopping in 2014
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Shoppers will continue to spend cautiously overall, but there will be a new intensity to their online spending. America’s economic conditions have reached holiday shoppers who will bifurcate into two distinct categories during this season: Survivalists (household income < $50k/year) and Selectionists (household income >$50K/ year). Most purchases will have to pass the test of affordability as shoppers carefully prioritize their spend and look for the best value. Expect more channel fragmentation as shoppers budget for not only dollars but their time. Giving consumers the right omnichannel experience is essential. That means allowing shoppers to move easily across channels, giving them many options to choose and buy while providing retailers visibility into inventory and pricing. It will be important to understand the cash/credit position of shoppers during the entire season. Spending will be concentrated during four periods; pre-Thanksgiving, Black Friday, Mid-Holiday, and Post-Holiday.

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The 3 S's of shopping — searching, showrooming, and selection — have become permanent. A new Thanksgiving ritual of shoppers going online to prepare their “holiday shopping plan” has emerged and may be the most significant shopping pattern change this season. Shoppers are clear about what they will spend their holiday dollars on, making it critical for retailers to differentiate within those categories. Clothing, gift cards, toys, electronics, and media and entertainment are at the top of holiday wish lists. Shoppers recognize that experiences are beginning to count just as much, or more, than gifts. Holiday family get-togethers and family occasions will continue to grow in importance. Shoppers plan to shop at multiple stores as well as websites. Mass merchants, department stores, and major online retailers are at the top of their planned destinations. Retailers have significantly upped their game in planning for an investing in improved in-store and omnichannel experiences. In addition, extensive weather planning is part of ensuring holiday success.

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1. Economic conditions are dictating holiday shopping behaviors
Economy is on the minds of holiday shoppers this year: •  •  72% believe the economic environment is the same or worse than it was in 2013 84% plan to spend the same or less than in 2013

Key economic drivers include: •  •  •  Limited disposable income (64%) Rising cost of living (61%) Insufficient salary (37%)

$684
Projected average household spend (down from $735 for 2013)

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2. The disposable income divide has split American holiday shoppers into two distinct groups: Survivalists and Selectionists
Overall spending trends are important, but they only scratch the surface to address the growing divide among American holiday shoppers. Consumers are split into two groups, each with its own motivations and preferences.

Survivalists represent 67% of American shoppers (up from 65% in 2013; 63% in 2012). •  •  •  Earn less than $50K annually Are constrained by cost of living and apply the lens of affordability to all purchases Average household holiday spend: $377

33%
Selectionists

Selectionists represent 33% of American shoppers (down from 35% in 2013; 37% in 2012) •  •  •  Earn more than $50K annually Make careful decisions based on their disposable incomes Average household holiday spend: $978

67%
Survivalists

Source: Survivalists and Selectionists; The Dialogic Group LLC; 2011, 2012, 2013, 2014

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3. Prices, deals, and convenience considerations are at the core of spending decisions — even more than in 2013
Shoppers will spend with an “every dollar counts” mind-set •  84% of shoppers cite best prices as the main reason for choosing a place to purchase gifts — up from 74% in 2013

Getting a good deal will be the inspiration behind many purchases •  43% of shoppers will shop based on frequency and quality of seasonal deals like doorbusters and “BOGO” (buy one, get one free)

The share of online will continue to grow as shoppers seek convenience and value •  •  •  50% of spending will occur in physical stores (down from 55% in 2013) 43% of spending will be online (up from 42% in 2013) 58% of spending will be on gift cards, the hottest category next to clothing this year

84%
Shop for price

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4. The omnichannel is set to explode and become a new holiday tradition starting this year
2014 could be the turning point when consumers make online planning part of their holiday shopping tradition •  41% of shoppers plan to increase their online spend in 2014 from 2013

Omnichannel shoppers are segmented into three categories •  •  •  Tradeoff Shoppers (39%): They shop around extensively and buy online if it is cheaper Transitionalists (29%): They shop online a bit, but generally prefer traditional stores Digitalists (32%): They consider online their go-to channel for most discretionary and planned shopping Showrooming Selection Searching

The 3 S’s identified in 2013 dominate 2014 behaviors

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5. Marketing and merchandizing strategies will have to be honed for four distinct shopping waves
Timing is everything this holiday season. Shoppers will spend in four waves and targeting them at the right time with the right value and offers will go a long way toward influencing their purchase decisions. Wave 1: Early Holiday 21% of the holiday spend occurs from now through the Thanksgiving weekend Survivalists plan to spend ~$86 Selectionists plan to spend ~$202 Wave 2: Black Friday 21% of spend will occur over the week of Black Friday Survivalists plan to spend ~$84 Selectionists plan to spend ~$205 Wave 3: Mid-Season Frenzy 50% of holiday spending will happen between Thanksgiving and Christmas Survivalists plan to spend ~$184 Selectionists plan to spend ~$489 Wave 4: Post-Season Deal-Seeking 8% of the spending will be after the holidays as shoppers continue their quest for affordability Survivalists plan to spend ~$23 Selectionists plan to spend ~$83

When consumers spend will be driven by three emotional and behavioral factors:
•  Available cash and/or credit (86%) •  Deal attractiveness both on and offline (73%) •  Merchandise importance to the shoppers gift ideas (62%)
Source: Survivalists and Selectionists; The Dialogic Group LLC; 2011, 2012, 2013, 2014

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6. Families will be refining their holiday shopping strategies while the turkey is in the oven
As affordability and disposable incomes become major considerations, there will be a lot of planning around where and what to buy and how much to spend over the Thanksgiving weekend. Thanksgiving Day •  49% of shoppers plan to search, showroom, and purchase on Thanksgiving morning Black Friday weekend •  50% of all shoppers plan to shop during Thanksgiving/Black Friday to grab the best deals •  The “early bird” tradition continues with 75% of Black Friday shoppers going to stores

80%

Mass merchants

Channel choices

68%

70%

Department stores

Major online retailers

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7. Shoppers will spend on categories that are personal, convenient, simple, and useful in daily lives
At the top of the 2014 holiday wish list are •  •  •  •  •  Everyday clothing (61%) Gift cards (58%) Traditional toys (39%) Personal electronics (36%) Media and entertainment (31%)

The same five categories appear on the wish lists of both Survivalists and Selectionists

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8. Family get-togethers grow in importance as shoppers look for holiday experiences besides gift-giving
Holiday gatherings are popular among all respondents but more shoppers with income over $50K will participate in such celebrations •  Thanksgiving dinner tops the list of 2014 holiday eating occasions: 76% of America plans some type of celebration (up from 68% in 2013) •  Christmas and Hanukkah celebrations are second, with 73% of America celebrating (up from 69% in 2013) •  Family and friends’ in-home parties rank third in holiday celebrations, with 53% of America celebrating (up from 46% in 2013) •  Out-of-home formal parties are projected to drop to 32%, down from 41% in 2013, as American returns to entertaining in the home •  Spontaneous get-togethers are projected to increase as Americans (especially Millennials) celebrate the holidays Unique opportunity: Millennials (young people, aged 18–34) may well value experiences over gifts. Fifty percent will celebrate the season with holiday events.

Survivalists Thanksgiving dinners Family get-togethers throughout the holidays Holiday celebration dinners (Hanukkah, Christmas, etc.) Home entertaining Holiday events Out-of-home parties 69% 67% 64%

Selectionists 75% 73% 71%

35% 35% 24%

47% 47% 36%

Source: Survivalists and Selectionists; The Dialogic Group LLC; 2011, 2012, 2013, 2014

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9. Shoppers continue to fragment their shopping experience, balancing in-store and online
The 2014 holiday shopper will “travel” to stretch every holiday dollar Survivalists •  •  53% plan to visit two to three stores/websites 23% plan to visit three to four stores/websites

Selectionists •  •  47% plan to visit two to three stores/websites 28% plan to visit three to four stores/websites

Both groups will shop across three main channels throughout the holiday season •  •  •  Mass merchants (79%) Department stores (65%) Major online retailers (71%)

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10. Retailers are substantially increasing their differentiation through intensified holiday planning
The Winter Weather Effect: Another challenging winter could dampen offline holiday spending. But that doesn’t mean shopping will come to a standstill. Shoppers have a bad weather strategy, and so will retailers. The Omnichannel Experience Effect •  With cheerful decor, popular music, artisan foods, and kid-friendly attractions, many retailers plan to turn holiday shopping into a memorable experience for consumers, even on bad weather days Expect to see retailers roll out efforts such as traffic engineering, parking assistance, valet services, and shuttles from transit stops Online transactions will replace in-store visits and retailers will be ready to manage the high volume of transactions, providing the customer service and convenience shoppers desire Efficiency and smart logistics will be key to ensuring a hassle-free experience for shoppers

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Competing in this environment requires a high level of organizational excellence from retailers
“Shout out” your holiday banner promise Make sure your shoppers know what role you can play in their overall holiday experience. Repeatedly changing marketing and merchandising strategies confuses the shopper. Invest in differentiating your in-store experience Shoppers want simplicity in store navigation, knowledgeable associates, dependable in-stock, merchandising innovation, and in-stock visibility. Make sure your omnichannel experience is at least market comparable Ensure all your digital assets work flawlessly. Make them easy to navigate, have outstanding product information, make checkout easy, and institute consistent practices. Remember: Deals are critical for driving traffic Tune your deals and offers to when your shoppers are most likely to purchase. Remain flexible throughout the season as shopper spending behaviors evolve. Focus promotional strategies — get “up close and personal” on everything communicated Ensure that marketing and merchandizing personalizes all shopper communications. More is not better; personal relevance is. Where possible, increase attention on your most loyal shoppers Win first with those who have been and remain loyal. Treat them as royalty, then carefully expand further. Ensure that your cybersecurity capabilities are “best in class” Shoppers will not tolerate another season of privacy invasion. Align your entire organization around “how we win this holiday season”

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Omnichannel cross-organizational alignment is critical Flawless/seamless end-to-end execution is a must Flexible, adaptable, responsive, and favoring a call to action are the qualities of holiday winners

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