2017 Deloitte holiday survey has been saved
The holiday shopping season is upon us—and it’s good news for retail. Consumer confidence is up and forecasts show that holiday sales will follow suit. Rod Sides talks about experiential giving, disruption in retail, consumer expectations, mobile payments, and much more.
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TANYA OTT: I’m Tanya Ott and this is the Press Room. It’s November and I don’t have to tell you what that means—holiday shopping. As a consumer, you probably either love it or hate it. But if your business is retail, you know just how much rides on these next few months. Deloitte has tracked holiday spending for 32 years and this year is looking pretty good.
ROD SIDES: What we’re projecting is the holiday sales will be up 4 to 4.5 percent, which is a little bit higher than some of the other projections that are out there in the marketplace. But all the indicators seem to point to the consumer spending more.
TANYA OTT: That’s Rod Sides.
ROD SIDES: I’m the leader of the retail distribution practice for Deloitte in the US.
TANYA OTT: How does that compare to growth in previous years?
ROD SIDES: In the last two years, the growth has actually been about 3.6 percent both years, which is pretty interesting because our forecast was exactly in that range. But this year, there are a couple of factors [at play]. Unemployment continues to drop, so the job creation has been good. We’ve seen earnings start to creep up as well and overall net worth of the family has gone up, at least based on the projections that we’ve looked at. So as a result, it generally bodes well for a holiday season where the consumer confidence for many is pretty high.
TANYA OTT: When you break it down along brick and mortar versus e-commerce sales, what does that picture look like?
ROD SIDES: Here’s what’s really interesting around that. When we ask people about shopping intent, people expect to spend about 51 percent of their budget online and 42 percent in the store. It’s the first time in the history of the study that we’ve seen the intent be to spend more online than in the store.
TANYA OTT: So it’s hitting a tipping point this year.
ROD SIDES: It absolutely is. With holiday sales topping $1 trillion last year, we anticipate again it’s going to be slightly over a trillion dollars—there’s real money that’s going to go online. We anticipate it’s about $110 billion that’s going to be spent online in this holiday season alone.
TANYA OTT: What is driving it this year? In previous years, we’ve talked about handmade goods and things like that. Is there still that nostalgia or that sentiment factor?
ROD SIDES: We didn’t find that as much this year as we had in the past. What we have found is that the experiential giving is up.
TANYA OTT: What does that mean?
ROD SIDES: When we look at the breakout of what the total projected spend per person would be, it’s about $1,226. That’s what we’re projecting in total, and $480 of that ends up being gifts for shows, entertainment, those kinds of things. We call that experiential giving. Only $430 [is] for “actual gifts.” Then there’s the balance that’s made up of things like food, entertaining, and home, et cetera. So we’ve actually found the experiential side to outpace gifts this year, which is pretty interesting.
TANYA OTT: I’m right in step with the predictions because the big gift I got all my family members was tickets to see Kinky Boots.
ROD SIDES: That’s exactly right. There’s a couple of things going on there. The theory I have is that individuals spend so much time now via digital [and] social online, but we’re just not spending as much [face-to-face interaction] time as we used to. People really savor that and enjoy the time around the holidays to find ways and reasons to connect. That’s one reason why we’re seeing the experiential elements going up over time.
TANYA OTT: We have talked a lot on this podcast in the past about disruption in all kinds of industries. And you and I’ve talked in the past about disruption in the retail industry. What’s it look like this year? What’s new or what’s an even bigger factor this year when it comes to disruption and retail?
ROD SIDES: When we asked the respondents where they preferred to shop—online or in the store—what we found is 60 percent said that they would prefer to be online. There were only 32 percent who said they would prefer to go to the store. The balance said they really prefer essentially an omni-channel type of experience where there’s really both online and in-store. What we’re finding is, it’s about convenience. It’s about the ability to find the products they’re looking for. That’s one of the key disruptions that we’re seeing.
TANYA OTT: Last year, you and I talked about a lot of people wanting to shop online to narrow down what they’re looking for, but then actually go into a store to touch it and feel it and purchase it.
ROD SIDES: What we’re finding is that the consumers are getting more and more comfortable actually making the purchase online. One of the key statistics we look at is: “Tell us how you’re going to use your tablet or smartphone,” etc. This year, we’re at an all-time high in terms of number of folks who say they’re going to use a tablet to make a purchase. That’s up to 75 percent. If we look at the number of people who are going to make a purchase on the smartphone, it’s up to 59 percent over 46 percent just last year. What we find is that folks have become much more comfortable transacting. And that’s driving a lot of this change.
TANYA OTT: What does that mean for retailers in terms of the experience they need to build on those digital platforms?
ROD SIDES: A couple of things they can do. They have to make finding products a lot easier online than perhaps they have in the past. They have to tailor a lot of the promotions to be focused on the digital side of things and making sure that they connect with the consumer where they want to be—and that is digital in this instance. I do think it’s going to change over time how much inventory is put in the store. Perhaps, there will be more inventory held back in the distribution center to enable them to move that more efficiently to the consumer, because what we’re finding is consumers are really asking for convenience as much as price at this point.
TANYA OTT: The observation that you make about how over time there being less inventory in stores and more in distribution centers is kind of interesting. I imagine that could have some consequences when it comes to actual size of brick-and-mortar stores and the way buildings are used in urban or suburban environments around retail.
ROD SIDES: It absolutely can. The distribution centers that have been developed historically are all focused on flowing product through the distribution center and moving it directly to the retail store, because ultimately that was the sales point. Now what we’re finding in the digital world is that more of that inventory needs to be retained in a central location so it is not shipped and handled more times. Most of those facilities aren’t equipped to be able to handle that. There’s a lot of upgrading, if you will, that’s going on to be able to allow them to have that kind of capability, and so it does have a profound impact on what we’re seeing from a holiday perspective. Over time, we’ll see retailers continue to chase that trend.
TANYA OTT: What does that look like from the economic development or from an urban or suburban planning standpoint? We’re going to see much smaller footprints in brick-and-mortar stores, even smaller than now?
ROD SIDES: I think so. I think you could see the square footage go down. What might happen is there might be a tradeoff for having some local warehouse space. I can see an instance where you might have a supplier actually have product positioned much closer to the in-state market and the retailer essentially being able to replenish their stock on a much more frequent basis than they do today.
TANYA OTT: A lot of what’s driving this is probably the fact that consumers really do expect to be able to order their product and have it really quickly. I mean this is the Amazon effect or whatever.
ROD SIDES: Correct. The expectation now is that I can get a product in two to three days and that’s pretty acceptable, especially if it’s free. We’ve asked some of the respondents, “Would you be willing to pay for expedited shipping?,” and it’s pretty consistent with what it was last year. About $5 for same day. Right at $4 for next-day shipping, et cetera. But most people expect it to be free. I think we have seen expectations be set with the consumer in terms of what’s a reasonable timetable and a reasonable cost, even though their expectation for cost is nowhere close to what it actually costs.
TANYA OTT: Yeah, the consumer can expect whatever they want, but the retailer then has to deal with that on the back end, and if they’re going to charge much less for same-day or next-day or two-day shipping, they may have to boost the price of products themselves.
ROD SIDES: I think retailers got smart about baking that a little bit more into the price of the product that the consumer sees.
TANYA OTT: Any other big headlines from this year’s survey that you want to talk about?
ROD SIDES: The only other thing that we found that was pretty interesting is we’ve been looking for this notion of mobile payment: Is mobile payment going to step in and is mobile wallet going to take off?
Historically, we said no, that’s not going to be an issue. But when we started asking folks how they intended to pay, we’re finding the payment capability that’s embedded in native apps by the retailers are the way in which people are making digital payments today, which is very interesting. It probably has seen adoption in ways that we didn’t anticipate, but yet more and more consumers are more comfortable with electronic payments, using mobile as one of the capabilities to be able to make payments going into the holiday season. It’ll be interesting to see if that continues to grow, but that was a little bit of a surprise for us.
TANYA OTT: It makes me wonder about the swift uptake on things like Alexa and other smart devices in the home. Obviously, you can’t browse pictures and things like that, but you can start to make purchases on stuff like that. Will those smart devices have some effect in future years on retail purchasing?
ROD SIDES: I think it absolutely will. It will not only influence what we purchase, but they will also influence the brand that consumers ultimately get. There are a number of retailers who are looking at that and they’re trying to create specific partnerships to be able to be at the top of the funnel. But it really becomes the next level of search. So instead of you and I as consumers go online and, once we do the search, picking the retailer and the platform, now all of a sudden, we’re going to have technology assisting us and doing that on our behalf. In a lot of cases, it’s not asking for the rules that we’ve set, but sort of set them on a pre-determined basis. It really will be interesting to see if that further shifts market share from one player to another.
TANYA OTT: I might be cooking dinner at night and say, “Hey Alexa, tell me where I can purchase the cheapest—insert product.” And then say, “Okay, sounds good. Buy it!”
ROD SIDES: Correct. But you better make sure that you add cheapest into your instruction set, because if not, if you said, “Tell me where I can get the best mozzarella cheese.” Then it’s really up to Alexa or someone else to determine. So you’ve got to be really specific about some of those instructions. I think over time the consumer is going to learn. The technology that they’re going to support in future will learn as well. I mean that’s the nature of them. But it is going to be a little bit of an interesting time over the next couple of years as that starts to become more mainstream.
TANYA OTT: Okay, great. Well, thank you so much for your time, Rod Sides.
ROD SIDES: Absolutely.
TANYA OTT: Alexa, buy some mozzarella cheese.
ALEXA: Voice ordering is available for Amazon Prime members only.
TANYA OTT: And there you go—a preview of the future of retail.
Back to this year’s projections. Remember Rod said holiday sales will be up 4 to 4.5 percent? Deloitte’s chief economist says there are a few uncertainties that could bring that number down. The threat of the government debt ceiling crisis—which has loomed over prior holidays—could cut employment and income growth. Then there’s the unusually active hurricane season. We still don’t know the long-term impact of hurricanes Harvey and Irma. They could depress spending—or they could increase it, particularly in the home improvement sector.
With the holiday season just a few weeks away, though, I guess we’ll know sooner rather than later.
I’m Tanya Ott. Be sure to check back in two weeks when we drop another Press Room podcast. And tell us what you think about it—we’ve got a new Twitter handle. It’s @DeloitteInsight—that’s singular. No “s” on the end. We’d love to hear from you.
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