Consumer optimism up, but pragmatism rules

Holiday season 2023 purchasing is looking intentional and practical, says Tyler Murray, US CEO of WPP’s VMLY&R Commerce

How US holiday season shopping shapes up clearly starts with the consumer. And consumer sentiment is up. The US numbers are showing an intent to splurge – a little.

Bain & Company is talking about ‘muted holiday growth’. Meanwhile, Forbes is reporting that confident shoppers are starting to spend early. And Deloitte says that the holiday spirit (and spending) is back as shoppers and retailers gear up for a return to pre-pandemic spending levels.

Deloitte says the US consumer is planning to spend an average of $1,652 this season with 95% of consumers saying they plan to purchase during the holiday season, despite most of them expecting higher prices this year.

“What we are seeing is that Gen-Z, in particular, want to splurge as a way to create joy,” says Murray. “We have experienced so much stress as a result of the poly-crises that people are looking to consumerism as a way to create joy, and they are looking to brands and retailers to facilitate this.”

But that is not to say there is no financial constraint. “I expect to see consumers – as they buy gifts – to be much more intentional and practical in what they buy. For example, if they are buying apparel as a gift, they may look for an item that has multiple uses rather than an extravagant purchase that they may only use once,” he says.

Murray also points out that consumers are increasingly gifting experiences in which they can participate: “While I do expect to see holiday consumption to be on the rise compared with last year, those purchases may well shift into different categories.”

So how are consumers shopping?

“There'll be more channel surfing than before,” says Murray. “Historically, many US retailers have tried to be a one stop shop for all things holiday season, particularly the bigger retailers. I think they're realising consumers just don't behave that way anymore. They will be buying one off items from lots of different retailers, from lots of different channels – that is ecommerce and in-store – and that means retailers are putting less emphasis on being one-stop and more on having elaborate deals.”

What is more, ecommerce growth might slow – for the first time in 15 years. “That is just because ecommerce is now a more mature channel,” he says. “It’s not that it’s less important; it’s more that it’s reaching maturity.”

All this hints at greater vibrancy around the shopping experience, albeit that it is constrained by affordability. “I think inflation concerns this year will be significantly diminished versus last year. But to stand out in a tough economic climate and a crowded marketplace, brands and retailers will need to double down on creativity to connect emotionally, at the same time, deliver genuine value to consumers looking for deals.”

And how are retailers reacting?

“Clearly, big retailers would like value shoppers to buy more than necessities but, at present, consumers are focusing more on their needs than their wants, and they are putting their discretionary dollars elsewhere,” says Murray. “But we may see shoppers tempted by gifts that cost, say, less than $25. And we may see retailers react by discounting.”

Other US retailers are leveraging their omni-channel capabilities and differentiating themselves from e-retailers by focusing on their in-store capabilities. “We have already seen one example of this in the shape of late night online pickup and delivery. It’s all about improved consumer convenience,” says Murray. And live shopping is becoming a feature in the US too. Stock picking – for online delivery – is going live for one large retailer, thereby taking the guesswork out of substitutions.

“And retailers are having to up their game in terms of their omni channel fulfilment if they want to stay competitive. Rapid delivery times are a higher priority than ever before,” he says.

Perhaps the biggest disruptor is that TikTok Shops are making a splash in the US this year. It’s not a Gen Z thing – everyone’s on TikTok. “Simple commerce really does work,” says Murray.

“TikTok Shop is really about live shopping – something other retailers have dabbled in but never really unlocked,” he says. “With its potential to bridge the gap between discoverability and purchase, it will be interesting to see if brands will be generous with their budgets this year.” Amazon Inspire will also mark its holiday debut to make shopping a more collaborative experience.

He adds: “With both platforms we should expect to see highly personalised and tailored content driving growth in social commerce this season.”

Don’t forget the creative multiplier effect

“The industry has been transformed by retail media and it continues to make up a significant portion of marketing budgets,” points our Murray. But while interest in retail media is high, true understanding of all its complexities is relatively low and there has been general oversight of an important factor: creativity and its impact on returns.

“Ideas matter,” he says. “Creating a banner ad is not nearly as effective as having great insight into your audience, or your consumer, and turning that insight into a big idea. Then once you have a great idea, then find the right channels within the retail landscape to bring the idea of life. Everyone’s starting with the technology. We encourage brands to start with insights first, which inspires the big idea, and leads to the tactics and media plan that will optimise results.”

Ultimately, commerce is a place to build brands, and has the power to deliver more than incremental sales. So, with holiday shopping starting earlier than ever, where and how consumers spend their dollars will offer a glimpse into what’s next in commerce creativity into 2024 and beyond.