We all thought this holiday season would be different. The summer saw a definitive shift in consumer behavior that started to look like the “new normal.” Offline sales were returning to expected levels, and online activity started to follow a more stable growth pattern.
Then came the delta surge. Suddenly we saw a resurgence in online buying as consumers backed away from in-store shopping. Businesses were forced to change their channel and inventory forecasts — again. And now the surge appears to be subsiding, throwing yet another wrinkle into the critical holiday season.
Most companies can’t shake an eerie feeling of deja vu: Today’s shifting pandemic trends, supply chain issues, labor shortages and unclear buying patterns feel exactly like 2020.
In a typical year, retailers’ holiday plans are set in stone before Halloween. This year is going to be dramatically different. The key for a successful season is to have a range of contingency plans that can be launched on a dime in response to supply chain constraints and holiday buying patterns that will emerge in real time.
Here are five action items that could improve your profitability and customer satisfaction.
2020 was a watershed year for ecommerce teams, which are used to playing second fiddle to the larger wholesale or retail divisions that historically make up the bulk of sales. Not anymore: The digital team was the focal point of every enterprise in the world last year. In some, online was literally the only source of revenue during the darkest days of 2020.
That newfound attention made for a difficult 2021. Every business knew that 2021 couldn’t be forecast using the old “X% of last year” model, especially in Q2. Ecommerce trends were further upended this summer during our “vaccine honeymoon,” the first real glimpse forecasters got into the most likely post-pandemic online buying trends.
The “honeymoon” was a 10-week period from May 16 to July 24 when the United States saw a rapidly declining case count and retail and service businesses nationwide reopened. Consumer buying patterns took a dramatic swing back toward offline sales, with retail store sales surging while online sales quickly dipped 15% versus 2020.
We also saw shifts in core behaviors, like a decline in grocery sales driven by the return of eating out. For every business, this was a great forecaster of the “future state” of online sales once the pandemic’s impact ends, hopefully in 2022/2023.
How big a shift?
My company, Yeoman Technology Group, specializes in integrating digital selling with offline sales channels. We recently launched a detailed study of the ecommerce performance of multiple sites representing more than 100 B2C brands, 50 million sessions and $500 million in revenue. These businesses are all midmarket companies with $10 million to $250 million in revenue that make the majority of their money from offline brands. Translation: No startup, online-only dot-coms. These are retailers with brick-and-mortar foundations.
The results are fascinating. 2020 online revenue soared 65% from May to July across every major category. Much of that growth evaporated in the first half of this year, with 2021 sales dropping 15% as consumers migrated back offline.
This trend reversed itself starting in August as delta spread across the country. The year-over-year sales gap evaporated in August and September, with YoY sales actually up 2% versus 2020.
To make sense of these wild swings, every business needs to separate the pandemic into two parts of the forecast: spike and swing. The spike is the one-time surge caused by closures and consumer immediate needs and concerns. The shift is the long-term behavior pattern that settles in after the change.
The summer was the perfect time to model this out. The organizations in our dataset had an online pre-pandemic growth rate of 7.1% since 2016. If you overlay that with actual results, you get a great picture of the surge COVID caused.
In the graph above, we took actual sales results and overlaid the historical 7.1% growth with additional COVID growth; 35% of online sales in 2020 can be attributed to COVID-related activity.
Flash forward to this summer, where overall sales declined versus 2020. If you use the same 7.1% historical growth rate, sales for the group would have landed at $254 million. Instead, sales came in at $311 million. So our group ended up with an additional $56 million in revenue that I will argue is less about COVID, since restrictions were lifted, and more about a longer-term, consumer shift to online.
That $56 million, which accounted for 18% of summer sales, was down 55% from 2020 COVID-attributed revenue of $121 million. That begs a big question: How much of that $56 million is part of a short-term spike, and how much represents a shift that’s durable going forward?
The recent delta surge gives us some insight into the answer.
The surge ran from approximately Aug. 8 through Oct. 16 this year. The year-over-year declines that started in May stopped quickly, and the groups’ total sales came in up 2% versus the same period in 2020.
Last fall, we were still in the thick of COVID concerns, with school delays and no vaccines yet. However, this fall’s delta resurgence did not cause a major spike in online buying. If you overlay the historical run rate of 6.1% for the period of COVID-attributable sales — $42 million, 21% of total — sales likely attributable to COVID were actually down 9% versus 2020.
So what gives?
Delta was certainly on the news, and on consumers’ minds, but there wasn’t a year-over-year increase. Part of this may be the fact that consumers are vaccinated or are simply used to living with COVID and have adjusted their behavior accordingly.
My take is that the delta surge did not necessarily create another rush to online; the higher volume may simply represent the fact that consumers have more money to spend, and there’s been a permanent shift online.
What’s interesting about both the summer and delta time periods is that the COVID-related lift we identified was down in 2021 versus 2020, but the overall growth rates versus 2019 were remarkably similar for the two time periods — up 43% in the summer and 41% in the fall.
So we took another look at our sales growth and further broke out the COVID periods into spike and shift estimates. Any COVID-identified growth in 2020 that didn’t materialize in 2021 is clearly a spike. Then we estimated what percentage of the remaining growth is likely shifted buying versus part of a moderated spike.
The result is fairly consistent for both the summer and delta time periods: 15% of the revenue during those two spans remained from the same 2020 time slot and should be looked at as part of your base ecommerce revenue.
This estimate is further bolstered by looking at a subset of sites that have a large recurring base of clients, mostly brands in the food and beverage vertical. In this case, both new and recurring orders surged almost equally in 2020, then shifted to stronger growth in repeat customers in 2021. Not only did the new 2020 clients “stick,” the existing base is now buying with increased frequency and recency.
If this model holds true for your operations, this is a huge lesson that applies to the holidays and beyond. Many ecommerce sites are still forecasting a dip this season based on their initial forecasts for 2021 but may end up seeing the same — or more — online sales this year.
It’s critical that your team understands what minimum sales volume is likely to be and plans accordingly. While you can’t control a new outbreak, understanding your minimum volume is key to make sure you have a plan to manage your sales volume and any stock issues as the season progresses.
OK, it looks like the ecommerce holiday is going to be a little better than forecast. So when does Christmas shopping begin this year?
Bad (or good) news: It’s already started.
A review of Google trends for the term “Christmas gifts” shows a 20% increase in searches over 2020, starting Oct. 1. It’s also up a whopping 40% over 2019 numbers. It’s still not the volume spike that we’ll see later in November, but it’s a big enough shift that brands should take note.
Thank the media for showing pictures of anchored cargo ships and telling consumers they better have started shopping yesterday. In response, 52% of consumers started holiday shopping (opens in new tab) in September or planned to shop earlier than usual, according to research from Oracle Retail. Twenty percent of respondents planned to order more gifts in case some were delayed or canceled.
Meanwhile, my company studied sales of branded seasonal gift baskets and ornaments on Amazon for the past three weeks. Sales of holiday-themed gift baskets are up 30% versus 2020, and ornament sales are up a whopping 150%.
To be clear, it’s not the volume you see after Thanksgiving. But I expect growth will continue to accelerate as we edge closer to the holidays.
Action item: Immediately do a historical review of September and October sales for your typical hot holiday items. This year-over-year growth will give you a great indicator of your existing customer base's organic behavior.
The Google Search Index is a great tool to see organic trends because it’s purely organic search. Plus, there are very few organizations that are bold enough to start running Christmas promos before Halloween.
If your organization does see this early spike, we suggest quietly adjusting your marketing campaigns. Don’t roll out the Christmas banner and themes yet, but certainly leverage more subtle tools, like Google Smart Shopping campaigns, Amazon product ads and Facebook user targeting.
Getting a sense of your upcoming volume is key to dealing with the biggest challenge this year: stockouts.
Repeat after me: We are going to run out of stock, and it’s OK. Say it loud, say it proud and make sure you say it to the boss.
We’re all getting a firsthand look at Supply Chain 101 economics as delays that started during the pandemic continue to ripple across the globe. There is not a single industry that doesn’t have one or more core components in short supply.
I remember sitting in operations class in the ’80s learning about lean, just-in-time and the Toyota way. I distinctly remember the professor saying it’s the best way to manufacture — unless there’s a major disruption. At the time, we thought by “disruption” he meant natural disasters or fires, and maybe he did. But a global pandemic has broken the very core systems behind just-in-time manufacturing.
And this is not a short-term problem. The consensus among economists and supply chain experts is a minimum of one year to catch up. The Census Bureau just released some great data on just how low inventories really are:
The Census Bureau data shows retail and business stock levels at their lowest in 30 years. Overall, inventory levels have been declining since the ’90s but did settle into some stasis — then Covid hit.
Your team is working hard to get products in, expediting orders, screaming at suppliers. Stop. Now you need to maximize what you have in hand. Raising prices is the knee-jerk step that almost everyone takes. Pivot a little bit, and try these three ideas to maximize what you have.
Rather than simply raising prices, turn off all the promos, offers and deals that are likely queued up for the holiday. This will definitely give your marketing team fits, but last year we saw multiple companies skip promos to shore up finances. The results were fantastic. One client stopped all promos in 2020 and saw a whopping 8% increase in profits without raising prices.
If this is an avenue you plan to pursue, alert your marketing team now so they don’t waste effort or money creating promotions.
For brands with multiple channels, this can be a painful process. However, the reality is that some channels, especially big retail ones like Walmart or Amazon, have great sales volumes but at a very thin margin. If you know you’ll be selling out, then shifting product to the most profitable channels is a logical decision.
In normal times, your sales team would freak out if Walmart or Amazon couldn’t get product. Push back this year. The commonality for everyone is limited stock and long lead times. While you may take a short-term hit with these partners, you should be able to regain ground in the future. Both are getting stockout messages across the board, so they’re not questioning pull backs as they would have pre-COVID.
Tip: If you do have plenty of stock, now is a great time to feed both retailers, if they’re buying. Both have major inventory constraints and will likely promote items they know they can fulfill.
One of the best ways we’ve seen companies adapt is to bundle their products to get maximum dollars and movement. However, this isn’t the traditional bundle created by the product team — it’s a strategic bundle of your A, B and C tiered items.
Most organizations have some level of capacity to create a unique “virtual” item online, maybe a sweater and scarf or collection of pans. This is always a worthwhile effort, but this year, focus on your top sellers. Keep them going as standalone items, but also use them as part of your bundles/sets to help move slower items.
Case in point: A U.S. toy manufacturer has 12 models of one of its most popular beach toys. The Top 3 characters account for 45% of revenue and were headed toward a sellout this summer, so the retailer created some A- and D-tier bundles. The result? The Top 3 still sold out, but the bottom three had a triple-digit growth spurt driven by the bundling strategy.
Bundling won’t be an option for everyone, but improving the digital footprints of your slower moving items can do wonders for sales.
Most B and C items haven’t had a content or image refresh in years. Every organization can quickly sweep their base stock levels and identify items that have plenty of stock and lackluster sales.
What type of refresh are we talking about? Infographic-based images, like York Nordic’s one for walking poles (opens in new tab).
The old rule of thumb was to show multiple images of an item on a clean white background. You’ve seen it before: A standard product shot, then four or five different angles of the same item. Merchandisers focused their efforts on the copy, including a snazzy title and compelling bullets.
That’s all changed. The rise of mobile has corresponded to a decline in the effectiveness of written descriptions. Users simply see images on their screens. In many cases, mobile users account for two-thirds of all revenue on retail sites. They’re simply not scrolling down to read your finely-tuned ad copy.
Pulling your bullets and value proposition into your images is a great way to boost engagement and increase close rate. It’s fast and effective and perfect to help move slower items.
For example, we did a pilot test for a client, retooling its top seller’s image and one of its “B” items that didn’t move well. The result? The top seller’s close rate improved 16%, while the B item’s close rate leapt 35%. The results were so impressive that the client is now digging through all its midtier inventory and hoping to get a boost from these well-stocked but slower-moving items.
This exercise is also a great precursor to a broader discussion about your overall image strategy. Ultimately, 100% of your products should have one or more infographics. The effort pays for itself but will require a major rework by your creative and catalog teams. Prove it out now and show it’s worth a bigger investment post-holiday.
If there’s one bright spot on the logistics front, it’s the last mile for delivery this holiday season. We’re expecting dramatically improved performance across the board, regardless of final sales volume.
How can that be, you ask? Two reasons: BOPIS and Amazon.
Buy online, pick up in-store (BOPIS) has been the customer engagement winner during the pandemic, growing 109% in 2020, according to Insider Intelligence. Larger retailers that had invested for years in the technology to support it won big. In fact, Insider Intelligence estimates that 64% of all BOPIS sales are done by seven firms: Walmart, Home Depot, Best Buy, Target, Lowes, Macy’s and Nordstrom.
These early adopters quickly shifted from traditional pickup to curbside and other options. My advice is that every retailer that’s able should revisit a pickup option, even those that have only a few locations.
Why? First, it’s profitable. Early BOPIS studies showed users bought more during the pickup process. That may have dropped a bit with COVID, but there’s anecdotal evidence it's still occurring. Second, no shipping or logistics costs. If your warehouse systems are interconnected, you’re simply pulling from existing stock using retail staff who are already working.
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Here’s how to fulfill customers’ needs at every touchpoint and provide the same functionality and experience across channels, no matter how a buyer chooses to interact: website, by phone or in store.
Ecommerce has enabled small and midsize businesses to compete with larger competitors. However, to stand out in the crowd, brands need to compete on more than product and price.
Retailers partner with third-party logistics providers for many reasons: to meet spiking demand, fulfill orders faster, lower shipping costs or handle returns. It all boils down to keeping fickle customers happy.
Plus, supporting software costs have dropped dramatically. Every major platform now has multiple BOPIS options for every size organization.
Amazon’s growth as a last-mile delivery firm may not seem like a benefit to everyone at first, but hear us out. The company has been building its own fleet of delivery vehicles for years and turbocharged this effort during the pandemic.
In fact, Amazon has zipped past FedEx in terms of U.S. shipping volume, according to Pitney Bowes, representing a whopping 26% of U.S. deliveries last quarter. That’s a huge amount of added capacity that, while it directly benefits Amazon, also helps everyone else by freeing up capacity at FedEx and UPS.
And we’ll need both of them at the top of their games this season. While the U.S. Postal Service officially backed down from its planned delay in delivery speed for First Class mail this Christmas, it’s kept the extra one- to two-day padding on Priority Mail packages implemented in 2020. The USPS 2021 delivery playbook looks exactly like the 2020 playbook, with little to no investment in more staff, equipment or technology.
If you’re still heavily reliant on USPS, start shifting away now. It will still carry a huge percentage of packages, but that lack of action means it will likely be the primary choke point. FedEx and UPS are better options for the season in which 35% of consumers say fast delivery determines which brands they order from, and 28% expect one- or two-day delivery, according to the Oracle Retail survey.
While this year definitely has a deja vu element, you can use the lessons from last year, plus the trends identified over the last few months, to help retool your digital operations this season. The broader supply chain and pandemic are beyond anyone’s control, but smart, nimble actions in response to both macro beasts are a great way to come out on top.
Michael Healey is the president of Yeoman Technology Group, leading a team of multichannel sales consultants who specialize in helping brands balance online sales with traditional retail and distribution efforts.
Prior to founding Yeoman in 2009, Michael was the chief technology officer at GreenPages and a senior contributing editor at InformationWeek. He’s an avid multi-channel shopper but not a fan of curbside pickup or drive-through coffee shops.