As the dust settles on the pandemic one thing has certainly changed, and that is consumers’ demand for products. Earlier in the year, as most nations opted to draw a line under that pandemic and reopen their economies, retailers found themselves competing with pent up demand for services. However, inflation and the Russia-Ukraine war has now tempered consumers’ appetite for any kind of spending. Adding fuel to the fire, constant media (mainstream and social) warnings of a looming recession, along with surging fuel prices, has scared even wealthier consumers into delaying many non-essential purchases. Although an official declaration of recession may not happen until early to mid-2023, consumer lifestyle changes and household spending revisions are already underway, according to Pymnts.com. To sum it up in a sentence: Consumers are increasingly concerned about the future and even those who are better off are spending more carefully or delaying purchases. Heading into the holiday season, which in recent years starts as early as late September, there is reason for retailers to focus on what will appeal to a consumer who is a lot less eager to spend. <blockquote> “History has taught us that consumers will seek out value even more when times are tough.” <footer> <cite>- Joel Anderson, CEO, Five Below</cite> </footer></blockquote> <h3><b>From Shopper to Saver</b></h3> According to a recent forecast from Salesforce, this year consumers are likely to begin their holiday shopping early in order to avoid what they believe could be higher prices later in the season. The cloud-based platform’s recent consumer survey revealed that 42% more shoppers worldwide and 37% more in the U.S. plan to start buying gifts earlier, in what they believe is the biggest consumer shift this season. The hunt for better prices is expected to see more consumers trying new brands. Otherwise put, brand loyalty will face even greater challenges. Salesforce said that 2.5 billion shoppers worldwide could ditch their brand for a lower-priced competitor. The most price-sensitive products will be more vulnerable to consumers moving to other brands. One-third of shoppers have recently purchased from a new brand, with 51% of consumers stating they have been enticed to buy from a new brand due to better prices and sales. This is followed closely by ease of online ordering (48%) and great selection (43%), according to a survey from Epsilon. Online has made comparison shopping easy, and thus brands who have relied on the convenience aspects of online that consumers enjoy, will need to consider ways to start building more of a wall around their business. That could mean anything from free shipping to other loyalty perks. <blockquote> “Focus early campaigns on scarcity, exclusivity, and sustainability to avoid discounting too early and too often.” <footer> <cite>- Salesforce</cite> </footer></blockquote> <h3><b>They’re Back …</b></h3> Just when retailers were able to finally move away from discounting and sell more merchandise at full price, overstock and weaker consumer demand is paving a path back to promotions. “While we predict that the ASP (average selling price) will increase monthly between 8% and 12% for the remainder of 2022, there will be the return of discounting,” said Salesforce. Retailers face pressure to clear what amounts to too much stock or the wrong stock, something most analysts believe will be the focus in Q3. That will allow consumers to pick up bargains ahead of the Q4 race to Christmas. Pricing and discounting strategies will be more crucial than ever to holiday success, as 17% of global shoppers (850 million) and 15% of U.S. shoppers (31 million) are unsure if they will buy<i> any</i> gifts this year, said Salesforce. “We are taking the necessary actions now to position ourselves for accelerated growth in what I view as the most attractive sector in retail (value retail), especially in the current economic environment,” said Dollar Tree CEO Michael Witynski, speaking to investors during an earnings call. He noted that the company’s plans to capitalize on the current trends via investments to improve the shopping experience at its 16,000 stores. “While the pressures facing some of our customers due to the reduction in stimulus and the current inflationary environment, weigh on our near-term results, history has taught us that consumers will seek out value even more when times are tough,” Five Below CEO Joel Anderson told investors on the company’s June 8 conference call. However, Salesforce encourages retailers to be mentally tough saying, “Consumers likely are going to be holding on to their wallets until they are absolutely sure they’re getting a great deal. Focus early campaigns on scarcity, exclusivity, and sustainability to avoid discounting too early and too often.” <blockquote> Both Adobe and Epsilon said apparel was the top category that consumers would be shopping for this summer.</blockquote> <h3><b>Online Will Square Off with Physical Stores</b></h3> According to Salesforce, 60% of digital orders are now influenced by the store – whether demand is generated or fulfilled. This year, with stores fully operational once again, we’ll see consumers gravitate to physical locations in even greater numbers. However, the benefits of online cannot be overlooked, especially as consumers search for better deals. “Consumers are satisfied with their online experiences, which is why these new online shopping habits are sticking around. Ease and convenience are top of mind, and they aren’t going anywhere anytime soon,” said Epsilon. Rising fuel costs could also encourage some consumers to shop online (when there is free shipping) instead of making another trip to a mall in order to save on gasoline. <h3><b>The Good News</b></h3> Although consumers are shopping more mindfully, they are still spending. Top purchases of non-essential items include clothing, shoes and accessories (83%), with health and beauty products at a close second (77%), according to a survey from Epsilon. The “felt like treating myself” sentiment seemingly hasn’t died down despite economic concerns, the survey revealed. Although those ‘treats’ might be for less expensive items. Q3 will kick off with several mega online shopping events that center around Amazon’s Prime Day (July 12-13). Target, Walmart and other retailers are planning competing events that overlap those dates. While sales forecasts for this year are more modest, most analysts still expect these events to play an important role in boosting sales. About 76% of those planning to participate in summer sales say they’ll spend more or the same amount as last year, according to data from an Adobe Commerce survey. The motivation varies with more than half (56%) of consumers saying they hope to save money by shopping on Prime Day and other sales events, while others want to get ahead of their seasonal holiday (32%) and back-to-school shopping (23%). Apparel is the top category consumers will be shopping with 43% saying they’ll be buying clothing, double the 22% who said they’ll be purchasing electronics, according to an Adobe Commerce. However 43% said they are more likely to purchase from a retailer that offers buy now, pay later (BNPL). Credit cards are no longer an option for most consumers who want to pay over time due to exorbitant interest rates. Low interest payment plans will play a key role in enabling consumers to purchase the products they want, while still paying for essential goods. Despite all the challenges, some brands and retailers will be winners this year. That will include players in value retail, mainstream and luxury. Those who succeed will have zeroed in on what matters most to their customers and narrowed their focus so that they can execute strategies even in complex market conditions.