Mirroring spending patterns seen last year, but with some unwelcomed logistical twists, the 2021 holiday shopping season is shaping up to be a win for most retailers. Sales are pegged to be higher, with significant gains in e-commerce sales and higher foot traffic in physical stores as shoppers engage with brands online, in person, and on social media.
The season is also stretching out longer, with a higher level of promotional activity. Marketing messaging is more positive and upbeat compared to the more somber tones of last year. And, similar to last year, consumers are spending more mindfully.
In this issue of Trend Spy in partnership with Klarna, the leading global payments and shopping service, WWD dives into what’s in store for retailers this holiday season, including key spending trends and a surge in demand for flexible payment options.
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With the peak-pandemic period behind us, there is renewed optimism this coming holiday shopping season. Retail analysts expect robust sales online and in-store — especially in fashion apparel and luxury goods. But there is a cloud hovering over the cheeriness: unprecedented supply chain disruptions.
David Sykes, Klarna’s Head of North America, said the market is now seeing “the long-tail impact of the pandemic, which has had a permanent effect on the traditional holiday sales season.”
“Last year, retailers kicked off sales earlier as they navigated consumers’ shift away from those infamous ‘door-buster’ holiday sales to online shopping,” he explained. “This year, in preparation for another increasingly online holiday sales season and amid a global supply chain crisis, retailers are starting their holiday season earlier to avoid potential headaches during the November and December months.”
Sykes said in Klarna’s 2021 Holidays Unwrapped Report, “we found that shoppers have the same concerns as retailers this holiday season, with 40 percent planning to start earlier than they did last year, primarily because they want to ensure product availability (50 percent) and avoid shipping delays (45 percent).”
Despite the disruptions, merchants and brands can win this holiday with personalized marketing and merchandising, and messaging that forges an emotional connection. And on the service side, offering flexible payment options, BOPIS, and curbside pickup will bolster conversions. After 18 months of reduced spending and chiseling away at their debt, this holiday season consumers are primed and ready to shop and buy — online and in stores.
Get ready for higher sales
Researchers from Deloitte said amid waning pandemic anxiety and stabilizing consumer sentiment, holiday sales are projected to grow. The researchers said holiday spending will average $1,463 per household, which is up 5 percent from 2020. And in Customer Growth Partners’ latest forecast, the firm expects a 6.7 percent year-over-year increase in holiday sales for the November-December shopping season, reaching $813 billion from $762 billion in 2020.
Klarna research also found that consumers’ budgets have indeed expanded. “We expect this year’s holiday sales to be bigger than ever – Klarna’s holiday report found that over one-third (34 percent) of shoppers plan to spend more on holiday gifts this year than last year, and 41 percent plan to spend the same amount,” Sykes said.
And in an analysis by WWD of marketing from retailers and brands, companies are reacting to the data by rolling out deals earlier as well as stepping up the cadence of promotions while keying into consumer demands for more personalized shopping experiences. Most notable is the number of newsletter emails brands are sending out. Many companies are sending out two or three messages per day with many focusing on a single product.
With e-commerce, Rakuten Intelligence said it expects online sales to see 26 percent year-over-year growth in the fourth quarter and said the apparel category could see a 30 percent gain. The researchers at the company see November as being the strongest month for online shopping, echoing Sykes’ point of shoppers getting the jump on purchases.
With physical stores, Klarna’s research found that big-box retailers, department stores and malls “are still beloved by shoppers.” The data showed that big-box retailers at 62 percent “are the most popular place to shop this holiday season, followed by department stores (37 percent) and malls (34 percent).”
The data also showed that 44 percent of Gen Zers are more likely to visit shopping malls this holiday, which compares to 38 percent for Millennials, 30 percent for Generation X and 28 percent for Baby Boomers.
A rise in smarter payment options
Drilling down deeper into the data, Klarna found that younger consumers are being more mindful about spending this holiday season while also seeking out smarter payment options. Klarna said Gen Z, Millennial, and Gen X shoppers prefer paying for gifts with debit (59 percent) versus credit (50 percent). And the majority are also looking for flexible payment options (Gen Z at 75 percent, Millennials at 76 percent, and Gen X at 60 percent).
Last holiday shopping season, flexible payment options such as buy now, pay later (BNPL) took center stage. Salesforce said the usage of BNPL and payment installments swelled 109 percent in the holiday 2020 season. And industry experts expect this year to see similar gains.
In a report from MediaRadar, BNPL advertising expenditures continues to increase as the popularity of flexible payments grow. “Ahead of the 2021 holiday season, retailers and online shoppers are embracing BNPL as a favorable means to finance purchases,” the authors of the report said.
Regarding what’s behind the growth, Klarna’s Sykes said offering flexible payments “helps people spread the costs of holiday season sales, which account for some of the biggest spending days of the year.”
“But the growing demand we see for flexible payment options comes down to the more significant, fundamental shift happening in the way that consumers shop, pay, and bank,” Sykes explained. “Shoppers are moving away from traditional credit towards payment services that don’t accrue interest. In the last decade, there has been 5-times higher growth in debit card volume than credit cards, and in the previous year or two, spending on credit cards dropped 50 percent.”
For its part, Klarna’s consumer network in the U.S. is growing fast, Sykes said, noting that its over 20 million active users in the U.S. are up 104 percent year-over-year. “We’re also seeing tremendous momentum of the Klarna app, which has 4.5 million monthly active U.S. users and was named one of the top 3 breakout shopping apps of 2021, with daily downloads surpassing the closest competitor by 20 percent, according to App Annie.”
Regarding the value proposition for merchants and brands to offer BNPL — whether that’s for online and in-store, Sykes said options such as BNPL “enable retailers to provide a higher-touch shopping experience better suited to shifting consumer preferences, both online and in-store.”
And when a shopper enjoys an exceptional experience, especially this holiday shopping season, “they’ll buy more, shop more often, and tell their friends – ultimately driving higher conversion and sales,” Sykes said. “By integrating Klarna’s payment options, our merchant partners see average order values increase by 20 to 80 percent, and conversions climb by 20 percent or more.”