2019 Deloitte holiday retail survey Keeping the good times rolling

06 November 2019

Driven by positive consumer sentiment about the economy and household income, this holiday season should see healthy retail spending, with consumers picking experiences over gifts, and e-commerce over in-store purchases, says Rod Sides, Deloitte's Global Retail leader.

When consumers look in their pocketbook, they see that they've got a little bit more money and they see unemployment at historic lows. And the fundamentals, the economy are pretty good, so we anticipate that they're going to spend pretty well for the holidays.

—Rod Sides, Global Retail Wholesale & Distribution Consulting leader, Deloitte Consulting LLP

Tanya Ott: Who’s spending how much and on what? We’re digging into holiday shopping numbers today on the Press Room. 

I’m Tanya Ott and I don’t know about you … but I haven’t started my holiday shopping yet and my life is so crazy busy that it’s stressing me out just a bit. I mean, I’ve got a list of people I have to buy for, and I’ve got some ideas of what I’m getting some of them … but, despite my planning, I’ll probably be running out at the last minute trying to check those things off my list.

Okay—who am I kidding? I’ll probably be sitting on my couch a week or so before Christmas, binging my favorite TV show, and clicking from one website to the next adding stuff to my cart!

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My guest today says there are a lot of people just like me. Rod Sides leads Deloitte’s Retail practice, and every year his group surveys thousands of US consumers to find out how much they plan to spend and what they plan to buy. I asked him, what’s the big headline this year?

Rod Sides: That the consumers feel really good about the holiday season. So, we anticipate that sales will be up 4.5 to 5 percent year over year, which will represent about US$1.1 trillion in spend.  So, it should be a very good holiday season for most of the retail players.

Tanya: How much are they planning on spending this year?

Rod: Right at US$1,500, which is pretty well in line with last year. We've seen it increased by about 5.4 percent over the last seven years, from 2012 forward. We've seen a nice rise in the amount that's going to be spent. This year should also be a good one, where you find consumers are going to continue to show up and spend the same or more than last year.

Tanya: When you survey consumers, are you asking them just about how much they're going to spend or are you asking them about their confidence in the economy?

Rod: We do ask a question about the longer-term view of the economy and what do you think is going to happen in 2020? This year, we saw a bump where folks were a little more pessimistic about what might happen in 2020, but we don't think that's going to impact the holiday spending this year at all.

When consumers look in their pocketbook, they see that they've got a little bit more money and they see unemployment at historic lows. And the fundamentals, the economy, are pretty good.  We anticipate that they're going to spend pretty well for the holidays.

Tanya: So, they're going to be spending. What are they going to be buying?

Rod: Generally, we're seeing experiences outweigh gifts, believe or not. We've seen a rise in experiences over the last several years and we continue to see that be the number-one item. It's dining outside the home, it's travel around the holidays, etc. That tends to be number one. Then gifts follow as number two. Then the other items that you might buy for decorating the home, etc., comes in number three, which is pretty consistent with what we've seen in the past.

Tanya: One of the things that you and I have talked about for the past several years is what are the things that are driving the buying experience. Obviously, having really good products is a big thing, but convenience has factored in quite frequently, as well.

Rod: The ability to have products shipped to the home, to get what you want, when you want it, is really important. [It’s about] making it easy for the consumer, especially in a compressed holiday season, [because] we're going to have six less days between Thanksgiving and Christmas this year than we did last year. As a result, there's going to be a premium on saving time and being able to get all that holiday shopping done before the holiday hit. That's going to really drive it.

In terms of the products themselves, apparel continues to be at the top. So that's number one.  Gift cards [are] number two. And we find that it's a little bit easier, maybe, to shop from your sofa than it is to worry about opening hours for a particular brand or store that you like.

Tanya: And that means a lot of e-commerce is happening then.

Rod: We think so. The numbers that the consumers are telling us, about 59 percent of what they expect to spend will be online, and 36 percent, give or take, will be in stores. So, the spread between online and in-store is actually increased about 200 basis points, or 2 percent, year over year.

Tanya: When [we] started talking about this maybe four or five years ago, I really wasn't doing much online buying myself. But now it seems like that's about all I do. I mean, it's just so convenient.

Rod: That's the experience in our house as well. We'll have a package every couple of days. What's really interesting is my kids, who are 20 and 21, they really don't go to stores very often. The majority of things that show up in the house are things that they purchased. It just makes it easy because your credit card numbers [are] already in the app to a large degree, and retailers have just made it easy for us to shop in that manner.

Tanya:  It's interesting. I don't know about you guys, but there's a breakdown in how the shopping happens in our house, because I also have kids who are upper teenagers and in their 20s and they're buying on their phones. I'm still buying on the laptop.

Rod: When we asked people what kinds of electronic devices they're going to shop with, the only thing growing is mobile phone. We saw that grow year over year. What's really interesting is, about 70 percent of respondents expect to make a purchase on the mobile phone. We've found that to become the ultimate utility device. Those of us who use laptops or use tablets pretty much have stayed the same in terms of that being a primary vehicle, but the mobile phone really has increased. If we go back and look at it over the last five years, those making a purchase has gone from the low 40 percent range to 70 percent. We can really see the adoption curve coming on strong for use of a mobile phone as a commerce engine.

Tanya: What's driving that mobile phone use?

Rod: It's easy and convenient, number one. Number two, there are a lot more offers that are available now via mobile apps than there were five years ago. We used to use the phone as a shopping aid to help us navigate, find the right product, find the right store in certain occasions, but we weren't served a lot of options for things we could buy instantly. I think retailers have gotten smarter over the last several years. They've customized offers. They use social media, [and] have those offers right there in the social platforms where folks are spending their time. Again, that's a convenience factor. It just makes it easier. I'll see my wife flipping through different ads, different looks that she likes, and she's prepared to make the purchases as we're headed to dinner.

Tanya: What's the effect of 5G coming out on the market? What do you anticipate we're going to see with these faster speeds on phones?

Rod: 5G is going to allow us to realize the promise of the Internet of Things. If you think about the ability to be always connected, to have faster speeds, hyper bandwidth … your ability to do in-store digital in a different way is there. The ability to bring other technologies to life, to make it as convenient as possible really, is something that we'll see move pretty quickly.

There's movement now of certain applications being engineered for 5G. From a consumer perspective, we’re maybe 12, 18 months away from seeing that widely adopted. But I do think it's going to allow us to continue to be connected everywhere. Rather than have some of the buffering and [other] challenges that we might have today, it's going to essentially have us connected all the time, in real time.

Tanya: I want to roll back for just a minute, because you make reference to there being in-store opportunities. For folks who maybe aren't using their mobile phones quite as much as, say, some other consumers, can you give us a sense of what that might look like if I were in a store and there might be an in-store opportunity that would be even easier for that retailer to deliver to me because of the faster speed on the 5G? What does that look like? What would that experience be?

Rod: That's a great question. What we find often is that folks are using their mobile phone for product reviews in store. It's a way to go look how many stars there are, really understanding what they're saying about the product, look at functions and features. Imagine if you could now do that with video, and you could have it cued up immediately. I don't have to read the reviews. The review is right there for me, and instead of kind of scanning through that, I get a 15-second video clip. It's really hard to deliver that today based on bandwidth constraints and speeds and device. But if you could do that up instantly, all of the sudden I've got a different way of interacting with a product—that's the kind of use case that will make it a very different shopping experience. Again, delivered by 5G, because even the current versions of what we have just can't bring that much bandwidth that quickly so that we're able to use that kind of technology.

Tanya: So, I might be standing in a store, I might be looking at the product, seeing the price. I could look easily at the review or the stars that it's gotten, but I can also watch a video of some demo-ing it.

Rod: Correct. So, let's say you're looking at something for the home—let's say for a coffee maker—and you wanted to compare one to the other [and decide] do I need that extra feature? Being able to really understand that, those kinds of capabilities would be pretty interesting.

Tanya: What about concerns about data privacy? As more of this shopping is happening online, as it's happening on phones, what are you hearing from consumers about how concerned they are about the safety of their own data?

Rod: Consumers tell us every year that they're concerned about the privacy issues and the safety of data; but they also tell us that they understand it's essentially a cost of doing business and one of the chances that, essentially, they have to take. Now, they are also willing to give more information to retailers if they get some kind of benefit in return. When we ask folks, “Are you willing to share more information?,” about 70 percent said, “Yeah, we'll share more information, but we really want to understand what you're going to do with that data. How are you going to protect it?” It is a challenge in the holiday season, but I do think that retailers are becoming more sophisticated in terms of how they're going to deal with privacy, and there are new regulations coming out that are also going to force them to get to some base-level standards for how they handle and manage data.

Tanya: One of the other things consumers are very interested in this year, as they have been in previous years, is free delivery.

Rod: That's exactly right. About 85 percent of respondents prefer free delivery over fast delivery. And fast is defined as about two days or less. But free, for the most part, is table stakes in retail today. Many retailers have a minimum purchase amount, maybe it's US$35, [at which] they'll provide free shipping. But it is one of those things that drives completion of the shopping cart at the end of the shopping journey. I know personally I get to the end of the checkout and if I have to pay for shipping, unless I really, really, really want the product, I'll abandon the cart. So that's something important, and those policies are really important for retailers not to lose a sale.

Tanya: I do the same thing, by the way, but this leads me to the question: What's the point at which we hit the point where people are expecting fast and free?

Rod: I would argue we're almost there already. There are times [when] I will place the order and it will still be there within a two-day window and it will be free. As the supply chain becomes more sophisticated, as we look at different options for being able to get product to the home, it's just going to converge. The one-day [shipping] doesn't matter as much as the two-day, at least in our survey that's what consumers told us. But there is value in free and fast. And that's going to become table stakes in the next three to five years.

Tanya: It sure seems like it's heading in that direction. Retailers love their high spenders and this year you look specifically at this group—people who spend a lot—to get a better idea of who they are and how they spend. What did you find?

Rod: What we actually found this year was that 60 percent of the holiday spending is done by 20 percent of those who spend at the holidays. Which is really interesting. That's first time we've looked at it in that manner. What we found is that of the high-income groups, so US$100,000 and above for household income, about 65 percent of the high spenders come from that category. About 35 percent come from the middle-income category, which is household income of US$50,000 to US$100,000. And the rest is lower income. We were surprised by the stratification of that span across the various income groups. So, that was one surprise for us. And then two, we wanted to look at how they shopped. What we found is those who spend a lot start early. They are more digitally oriented. About 71 percent of them expect to travel or entertain outside the home. So, the whole experiences piece is a huge part of that additional spend. For us, it's really interesting to understand how retailers can look to attract those high spenders, because if you do that, you have a great chance to win the holiday.

Tanya: I know for me, when I start buying earlier in the year, I do end up spending more because I often forget what I bought earlier in the year or I don't have sort of the grand scope of it.

Rod: That happens every year; those who start earlier always spend more. And just like you, there have been times in which we've bought things in advance, hidden and forgotten it, and end up with a present that shows up in January or February that we had forgotten about.

Tanya: Yeah!

Rod: It's absolutely part of what we see around that. Also, those who spend longer in that buying cycle—the majority of us spend four to eight weeks, total—[but] those who spend beyond twelve weeks to do their shopping also are always the higher spend. So just makes sense.

Tanya: That does totally make sense. Of course, the shopping season really kicks off right after Thanksgiving. And as you noted, that's happening later in the month this year. What does that do to retailers?

Rod: Retailers are going to have to be really sharp on their price points as they go into the Thanksgiving week and Cyber Monday because there's just not enough time left to adjust. If there has to be an additional offer, perhaps they need to go deeper on a particular discount; there's not a lot of time to react to what the market is telling them in terms of sell-through. They're going to have to be on their game when they put out the opening offers for the week of Thanksgiving.

The other thing that's interesting is we've seen a shift, to a large degree, in the importance of Cyber Monday. We've found across all age cohorts that Cyber Monday is more important than Black Friday now. They can lead early on the previous week, but they're going to have to be really tight on what they offer all the way through Cyber Monday, so that they can get that incremental market share.

Tanya: Well, great! That takes the pressure off me having to get up early on Black Friday with my daughters.

Rod: What's interesting about the Black Friday issue is that Black Friday and in-store generally is much more important than the lower-income cohort. With the higher income, what we find is Cyber Monday is much more important and folks are a little more relaxed in terms of needing to get to the store. It's an interesting phenomenon we're seeing.

Tanya: We started our conversation with talking about how people are going to be spending more this year and their confidence in the amount of money in their bank accounts and things like that, but there were some signs that consumers are feeling a little uncertain about the future that you alluded to. Can you tell me more about that?

Rod: We always ask the question, what's your outlook for the future? And we found this year, about 44 percent of respondents said that they expected the economy to worsen in 2020. So, we don't know if it's the market trying to talk ourselves into recession. There's a lot of discussion about tariffs, although we haven't seen the impact of tariffs show up in consumer products yet. So perhaps it's a new spin, a new cycle, etc.

The only other time we've seen confidence [about the following year] being down going into the holiday season goes back to 2011, and what's really interesting about that is that that was the year before an election for an incumbent. I'm not sure if there's a causation effect here, that perhaps there is just enough uncertainty with elections that perhaps people are feeling a little uneasy. But the economy was strong then. It's strong now. I don't know if there's something built into that. I don't claim to be a politician or have insights in terms of what goes on there. But it really is interesting that that's the last time we saw consumer confidence wane.

Tanya: Rod, thanks so much for the conversation and the update on this year, and we'll see you again in another 12 months or so.

Rod: That sounds great. I really appreciate it.

Tanya: Rod Sides leads the Deloitte’s Retail practice. His 2019 Holiday retail survey is available at deloitte.com/insights.

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