This year’s holiday shopping season is set to deliver muted results for retailers. Experts foresee U.S. sales growth remaining flat year-over-year – a far cry from the significant numbers businesses expect in the fourth quarter. And while Affirm research found that nearly 40% of people will spend more than last year, predictions suggest that persistent inflation and an uncertain economic outlook will restrict holiday gifting. The silver lining lies in the September rise in retail sales and the Consumer Price Index, proving that Americans are still willing to spend in certain areas.
For retailers looking to maximize sales over the next couple of months, here’s what to prepare for:
Discounts are all around us
Affirm found that of those waiting to finish holiday shopping, nearly 80% are waiting for better sales and discounts. Research by Adobe reiterated this unrelenting consumer quest for holiday deals, highlighting that some retailers expected to respond by slashing prices by up to 35%. But beware: consistent and significant discounts can erode a retailer’s brand and hurt their bottom line. Retailers need not cling to price cuts, even to win over the most reluctant shopper. One savvy alternative is to offer interest-free financing options and longer term lengths – and zero nasty surprises such as late fees or compound and deferred interest. This can help solve for affordability and empower consumers to stick to their holiday budgets without a reliance on heavy markdowns. For example, our merchants have experienced a 21% surge in sales by coupling a 0% APR offer with Affirm, alongside our monthly payment options.
‘Tis the season for gift cards
Americans will reduce spending on physical gifts compared to last year, with nearly half opting for options such as digital gift cards. Gift cards are soaring in popularity, particularly among younger shoppers, because they deliver flexibility, choice and control to both the gift giver and the recipient. This presents a golden opportunity for retailers: gift cards not only limit costly returns and exchanges, but research shows that consumers spend more when buying gift cards than they would on physical gifts.
Self-gifting is in vogue
Consumers are shaking up their holiday shopping lists, spending more on themselves than ever before. Experiences top the list for many, with holiday travel spending expected to surge by 12% compared to last year. Meanwhile, home furnishings and decorations are making a comeback as people invest in their living spaces and prepare for holiday parties. Retailers can seize this “selfish shopping” trend by leveraging tailored marketing messages and strategies that encourage consumers to make purchases for themselves and that they can share with their community. For instance, travel brands should direct their efforts to Millennials, the demographic expected to outspend others in the travel sector. And for apparel and home goods retailers, success lies in promoting products that empower consumers to self-invest and host gatherings, ultimately driving higher sales.
To recap, although inflation and economic uncertainty might bring headaches this holiday season, there are bright spots. Retailers should ditch heavy discounting and embrace interest-free financing options with longer term lengths, as well as ride the rise of gift cards and selfish shopping. Adapting to these trends is key to thriving in today’s cutthroat market, leading to lasting growth and customer loyalty this holiday season and beyond.
Pat Suh serves as Affirm’s SVP, Revenue where she is responsible for sales and client success teams covering Affirm’s enterprise and SMB merchants. Previously, Pat was Affirm’s Senior Vice President of Client Success. Pat has extensive experience leading multidisciplinary, cross-functional teams across a wide range of industries. Earlier in her career, Pat led global customer success and technical teams at Microsoft and Skyhigh Networks (acquired by McAfee).
