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By René Vader, Global Head of Consumer & Retail, KPMG International; Paul Martin, Chair Global Retail Steering Group & Head of Retail UK, KPMG in the UK; Anson Bailey, Head of Consumer & Retail ASPAC, Head of Technology, Hong Kong, KPMG in China; Scott Rankin, National Advisory Leader, Consumer & Retail, KPMG in the US, Linda Ellett, Sector Head Consumer & Retail, KPMG in the UK; and Jessie Qian, Sector Head Consumer & Retail, KPMG China. 

Last year, as more than 3.5 million people thronged the route of New York's famed Thanksgiving Day parade, retailers around the world were getting ready for another record-breaking holiday shopping season. From London’s Oxford Street and the Champs-Élysées in Paris through to Causeway Bay in Hong Kong, retailers were preparing to welcome crowds of people at their doors, all anxious to get their hands on the biggest 'door-crasher' bargains for the holidays. You could feel the excitement in the air.

Not this year. It's not just that the traditional shopping streets will be quieter. The COVID-19 pandemic has changed virtually everything about the holiday shopping season. And while some retailers will thrive in the new environment, others will find this holiday season to be rather bleak. Much will depend on retailers' ability to strengthen the fulfilment capacity, rethink the customer experience, and align to the long-term strategy.

How will it be different?

Given current health and safety measures at play around the world, nobody expects retailers to attract the physical lineups of customers they did in the past. Worse, data released recently in the US and the UK suggests consumer footfall could fall precipitously - one UK study suggests up to three-quarters of UK consumers will avoid shopping in-store this year.1

This is not surprising. For the past 4 months, KPMG International has been surveying consumers across 12 different markets to understand shifts in their needs and expectations. And what has become clear is that personal safety is now a top three purchase driver for consumers around the world.2 Just the idea of fighting through holiday crowds during a pandemic is enough to send consumers scurrying back into their homes.

Clearly, this is a massive opportunity for those retailers with sophisticated online and digital capabilities. Data from last year's holiday shopping season shows that consumers already had a strong preference for online shopping on key shopping days like Black Friday and Boxing Day even before the pandemic struck.3
And since the pandemic started, it has been the online platforms and players that have dominated retail sales.

In a world where the vast majority of consumers were suddenly locked into their homes and forced to move most of their shopping online, it was obvious that the big online players would benefit. Likely to emerge successfully from this crisis, will be those that have properly managed their data and their logistics through the pandemic, not necessarily those with the biggest online footprint (suggesting there is still room for retailers to win if they focus on the right areas).

Will it be austerity or indulgence?

The wildcard in the holiday shopping predictions, however, is whether consumers will open their wallets and - if so - how wide. For some segments of the population, the inability to take vacations, eat at restaurants or shop on main streets has led consumers to amass a sizable nest egg. Others, on the other hand, are facing significant cash shortfalls and are looking at dialing back their holiday spend.

Business spend on the holiday season is also a big question. Will companies spend their annual Holiday Party budget on gifts for the employees? Will corporations and office towers ‘deck the halls’ with holiday decorations if nobody is in the building? Or will businesses decide now is the time to recognize employees with a cash bonus (which, in turn, could drive more consumer holiday spending)?

Whether this will be a season of austerity or a season of indulgence will largely depend on the category and the market. And there is some evidence to suggest that indulgence might win. Demand for consumer retail shopping in China over the past few months, for example, indicates that those who have managed to maintain their income over the pandemic may be on track to spend more this holiday season than last.

In fact, during this year's 'Golden Week' holiday in China, retail and restaurants sales were up 4.9 percent compared to last year.4 Many expect this year's Singles Day (November 11th) to break sales records as pent up shopping demand drives China's biggest single shopping day. Western retailers will be watching with keen interest for any behavioral indicators that might emerge.

What does this mean for non-grocery retailers?

Almost regardless of the category, market or value proposition, retailers are going to face significant challenges. Some will find the holiday season more difficult than others.

The most obvious challenge for retailers is how to deal with the accelerated 'channel switch' from physical to online. Some can expect their online sales to more than double this year compared to last; not all will have the digital capability, fulfilment capacity or customer service capabilities to deal with the peaks that can be expected on online channels. Those without a sophisticated and effective digital capability will almost certainly struggle to make it through this holiday season.

This holiday shopping season will also see a massive 'category switch'. Certain categories will face uphill battles during the holiday season. Demand for New Year’s formalwear, for example, will most likely be down given social distancing restrictions in many markets; travel and leisure will remain depressed as customers avoid hotels and restaurants; and expectations for concert ticket sales this season are low.

Yet brands in 'hot' categories such as home office equipment, major appliances, home renovation supplies and fitness equipment and sports apparel can expect a banner year. In some cases, demand has already far outstripped supply; finding ways to lock in sales on items that may not ship until long after the holidays will require creative thinking on the part of some brands.

What about grocery retail?

For food retailers and grocers, the big concern this holiday season is bottlenecks. Demand for food and grocery has remained extraordinarily high since the start of the pandemic. All signs suggest it will only increase through the holiday season.

The challenge for grocers, therefore, is one of capacity. Social distancing requirements mean stores can only operate at about half capacity. And recent efforts to expand home delivery services in some cities and markets suggests there is not enough delivery capacity to meet peak demand in the days before a major holiday. Many are now rapidly building out their 'click and collect' capabilities and looking for ways to convince customers to buy their non-perishable goods early.

Some of China’s big online brands, for example, have started their online Singles Day sales early, allowing customers to place advance orders in a month-long shopping marathon festival. Not only does this allow customers to lock in savings, it also enables the retailer to achieve much more accurate forecasts on product demand and logistics requirements.    

Three areas of focus for the holidays

Our view suggests there are three areas that virtually every retailer will need to focus on if they hope to make it through the holiday season profitably.

  1. Strengthen the fulfilment capability. Logistics around home delivery and 'curbside pickup/click-and-collect' will require significant attention to ensure that peaks can be managed without impacting the customer experience. For some brands, this may require developing innovative partnerships or joining up with an existing delivery platform. For others, this will be about creating new models, reducing per-unit picking and shipping costs, and developing new fulfilment processes.
  2. Rethink the customer experience. This holiday season, the battle for customers will be waged almost exclusively online. That means retailers will need to rethink almost every part of their customer experience - from the way they acquire and communicate with customers through to the way they handle data and customer complaints. Customer motivations and expectations have changed since the start of the pandemic; knowing your customers will be key to driving success this season.
  3. Align to your long-term strategy. While it is certainly understandable to want to focus on the short-term - getting through the holiday season and out the other side - smart retailers will be making great efforts to ensure all of their activities this season align to their longer-term strategic plan. Ensuring you have enough cash, inventory and resources to survive until the 'end' of the pandemic (in whatever form that takes) will be key.

The Ghost of Christmas Past

As retailers look into the future, many are asking themselves whether we will ever return to the Holiday Shopping Seasons of yester-year, where crowds thronged the shopping streets and grocery stores. The answer is probably no.

Sure, once the pandemic passes, the Thanksgiving Day parade will likely return to New York City; Causeway Bay , Oxford Street and the Champs-Élysées will, once again, draw hordes of excited shoppers; some retailers will probably be able to whip up enough excitement that crowds will eventually return to the shop floors.

Our view, however, suggests these holiday activities will persist as important reminders of a holiday shopping era now passed. Everything else has changed. Retailers had better be prepared.