3 Insights Into the Holiday Shopper’s Mind

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CHICAGO (TheStreet) -- It's an early November retail ritual: the minute the inflatable skeletons and light-up pumpkins are packed into storage, out come the inflatable Santas and light-up menorahs.

The upcoming months are do-or-die for stores throughout the U.S., from department store mall anchors to independent mom and pop shops. According to the National Retail Federation, holiday sales represent almost 20% of all retail sales for the year; for some companies, up to 40% of their annual revenue comes in November and December.

The past two years were more about Scrooge than Santa. With worries about the economy and job losses, shoppers cut back on their spending. They focused on practical items, and their obsession for bargains forced many retailers to offer deep discounts. That meant profits were minimal, even when sales numbers inched up.

How is this season shaping up? So far, it looks like a reprieve from the Scrooge-like mood of the past two years. The federation estimates that holiday sales will increase 2.3% this year, after remaining flat last year and falling 4% in 2008. While shoppers will be spending more, they remain diligent about assessing what and how they're buying.

"While consumers have shown they are once again willing to spend on what's important to them, they will still be very conscientious about price," says NRF chief economist Jack Kleinhenz. "Retailers are expected to compensate for this fundamental shift in shopper mentality by offering significant promotions throughout the holiday season and emphasizing value throughout their marketing efforts."

Here are the main trends that will affect how holiday shoppers go about their search for the perfect presents:

It's all about value.
Not surprisingly, when shoppers were asked how they would decide where to shop, most cited price as the most important consideration. While that gives discounters an advantage, smaller stores will continue to use sales and coupons to draw customers.

People want to feel they're getting a good deal, but they're open to the idea of paying a little more for something that lasts longer -- especially when buying something special for a loved one. Making a pitch for value rather than just price can be a winning strategy for independent businesses that can't compete with Wal-Mart on price.

Other encouraging news for smaller stores: this year, a growing number of people cited quality and customer service as the most important factors in deciding where they would shop. Again, this gives an edge to businesses that can offer more personal service than big-box retailers.

It's all about convenience.
Holiday shoppers like to keep their options open. Most do their shopping in person as well as online, meaning you need to have both a brick-and-mortar and Internet presence. Many don't make their final buying decisions until the last minute, which means you need to offer extended holiday hours (and publicize them well).

And many shoppers simply don't know what to buy, which is why gift cards have become such a holiday staple. Gift cards are an easy way to encourage last-minute purchases at the register; on average, gift card buyers spent $140 on cards last year, with an average amount of $40 per card.

Younger consumers are also more likely to turn to their smartphones for guidance on what and where to buy. If you're looking to draw teenagers and young adults, consider strategies such as coupons that go directly to mobile devices.

Check your return policy.
Many retailers adjust their return policies for the holiday season. If you can assure a nervous husband his wife can return or exchange a sweater beyond the usual 30-day period, he will be more likely to make the purchase.

Such customer-friendly policies are helpful, but be careful that you spell out and stick to return restrictions. When stores are busy and sales go up, so does the likelihood of return fraud. According to a recent NRF survey, 90% of retailers have caught people trying to return stolen merchandise for cash.

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