The discounting frenzy is in full swing. Who will come out on top?

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Inflation, a mounting cost of living crisis and a turbulent year in key markets like the US and China have retail brands holding their breath heading into the high-stakes holiday season. Experts expect price-conscious customers to wait for seasonal deals.

Consumers plan to spend an average of $1,652 this season, surpassing pre-pandemic figures for the first time, according to Deloitte’s annual Holiday Retail Survey. Some 95 per cent of consumers plan to participate, up from 92 per cent in 2022 and just 88 per cent in 2021.

“There’s a caveat,” says Lupine Skelly, retail, wholesale and distribution research leader at Deloitte. “What consumers were saying to us is: ‘Hey, if I’m going to spend, it’s going to be during these really promotional events.’ It exemplifies how important these promotions and discounts are for consumers.”

Three-quarters (74 per cent) of consumers globally intend to take advantage of deals in November sales events this year, up 7 per cent year-on-year, according to Boston Consulting Group’s (BCG) Black Friday consumer sentiment data. US consumers plan to spend the most throughout the month. “We expect front-loaded holiday shopping demand into November, especially compared to last year,” says Mrin Nayak, managing director and partner at BCG.

Anticipated spending in the US during the Thanksgiving week period is up 13 per cent from last year, according to Deloitte’s 2023 Deloitte Black Friday-Cyber Monday (BFCM) Survey. Shoppers are expected to spend an average of $567 over the long weekend.

While American retailers continue to report sluggish growth, especially in wholesale, things are beginning to look up for the holidays. The US fared better than the quarter prior across many companies’ most recent earnings. Yesterday, Nordstrom reported a revenue miss, down 6.8 per cent year-on-year as inflation continues to dampen consumer spend. Last week, Macy’s shares rose following its third-quarter earnings report. Though revenues were down 7 per cent year-on-year to $4.86 billion, the results beat Wall Street’s expectations.

TD Cowen flagged in its Macy’s earnings notes that consumer discretionary trends remain negative at both Macy’s and Target due to inflation and a shift to services, but flagged gifting as a bright spot for the former going into Q4. Macy’s tightened its full-year adjusted EPS, suggesting higher profit expectations for the fourth quarter than first forecast. Both Tapestry and Ralph Lauren reported US wholesale hits earlier this month; the latter flagged the holiday season as an important quarter.

If retailers play their cards right, they can cater to inflation-wary consumers. “When there is this opportunity to buy the gifts on sale, that’s when people are really going to show up,” Deloitte’s Skelly says.

Standing out amid the holiday sprawl

Sales started earlier this year. As a result, consumers say they will be done with 60 per cent of their holiday shopping by the end of the Black Friday/Cyber Monday weekend, according to BCG. This means less pent-up demand than there once was for the buzzy sales weekend. October promotional events (such as earlier sales and Amazon Prime Day) could put a dent in Black Friday sales, per Deloitte: 41 per cent of respondents shopped for holiday gifts during those sales; and those who did are likely to spend 25 per cent less than other Black Friday shoppers. Of the fashion buyers Deloitte surveyed this summer, 21 per cent said their employer was planning to move sales promotions into September.

Laura Reilly, who leads the shopping newsletter Magasin (and releases a live Google sheet for Black Friday/Cyber Monday with good deal finds), flags the prominence of “private sale week” — the week when retailers from Ssense to Net-a-Porter to Saks offer sale access to repeat customers, typically about 10 days before Black Friday itself. “The private sale is solidifying as another, quasi-official part of Black Friday,” Reilly says.

Because of the sales saturation, brands need to work harder to stand out. Skincare brand Barbara Sturm offers the chance to win a “mystery edit” worth over $800 alongside Black Friday offers. Online retailer Goat gamifies Black Friday, with “BF23 Auctions” that invite consumers to bid on rare items and quizzes (eg. ‘The fashion house that collaborated with Studio Ghibli?’) to earn discount tickets and prizes. “It’s a tough place for retailers to be in,” Deloitte’s Skelly says. “It’s a race to the bottom. Everyone’s running these promotions. How do you differentiate yourself? You have to roll out the red carpet to really interest these customers.”

On top of standard strategies like free shipping and reduced minimum spend, the best bet is to lean into loyalty, Skelly says. “Retailers are relying on their loyalty programmes to make people feel special.” Loyalty members might get early access to a sale or free shipping. “It’s a great way to keep loyalty and grow it,” Skelly says. Not unlike the logic of the private sale.

It’s an opportunity to capture new audiences too, Nayak says. “Brands and retailers should also consider that many holiday shoppers are one-time or new-to-brand customers with lower customer lifetime value. By planning targeted retention strategies specifically for the holiday customer, retailers can increase the likelihood of driving repeat visits even after the holiday season ends.”

Looking ahead

After November, things are set to quieten down — the end of the year is expected to be more muted for the majority of retail. Fewer shoppers plan to leave purchasing until the last minute, according to consumer research platform Attest’s US Q4 Shopper Trends Report. Only 5 per cent will wait until the second week of December or later, down 17 per cent from the year prior.

This is less true for the luxury end of the market, which is less known for its Black Friday deals and where consumers plan to shop later. This year, 38 per cent of Saks’s Luxury Pulse respondents said they plan to begin their shopping after Thanksgiving, up 10 percentage points from 28 per cent from last year.

“Luxury is traditionally less exposed to promotions than other retail categories, with most deals typically driven by multi-brand retailers and department stores,” BCG’s Nayak says. That luxury brands have been emphasising timeless styles and brand icons (which are less likely to go on sale) means BCG expects luxury spending to be more evenly distributed across the season and less concentrated in promotional periods.

“Overall, the [Luxury Pulse] survey results reinforced our view that the holidays are meaningful to our customers, and that the luxury consumer is resilient,” says Emily Essner, Saks CMO. “While we continue to be measured in our approach and outlook on the holiday season, we are pleased to see that luxury consumers are ready to embrace both holiday shopping and holiday parties.”

Those who can afford to are planning to spend big. “That $200,000-plus income group was planning to spend a lot this year,” Skelly says. “So, there could be a big bifurcation story.”

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