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This year, Q4 holiday planning for digitally native brands will be unlike any other year.
With the U.S. economy flatlining in Q4 2019, followed by the novel coronavirus pandemic and nationwide protests, 2020 witnessed declining consumer confidence and nearly absent spending at brick and mortar retail locations.
This same confluence of events, bolstered by aggressive government-sponsored stimulus packages, also triggered explosive growth in online sales.
Looking towards Q4, it is safe to bet that blue chip brands that pulled back on ad budgets during the first half of the year are going to go all out through the holiday season. If you have not already began to secure budgets and outline your strategies for the oncoming holiday season you should get started now.
To beat the 2020 roller coaster, you’ll need the right insights to influence critical decisions and adopt a working strategy. Here are key performance expectations for Q4 e-commerce:
Key Economic Indicators
The current indicators communicate a significant shift in consumer behavior, and most people are opting for e-commerce platforms for their needs. Below are the key economic indicators, and how each is projected to impact the retail business:
Slower Consumer Spending
The post-Covid-19 era has seen harsh economic times that have led to the loss of extended unemployment benefits. This has led to slower consumer spending in August, with that trend expected to continue through September and October.
Core retails sales, a close correspondent with GDP’s consumer spending component, reported a 0.1% fall. The rate had increased by 0.9% in July. Despite the slower spending rate, over sales still grew by 0.6%. This means a small shift in consumer behavior during this final quarter could raise sales even higher.
A Surge in Unemployment Claims
As job resumption continues to drag on, there has been a gradual decline in unemployment claims. However, the end of August and early September saw an additional 860,000 U.S. citizens file unemployment benefits for the first time. This is four times the number recorded before the pandemic. The decline in overall jobless claims shows improvement in the labor market. But from the surge in unemployment claims in the first week of September, there’s still a lot to be done to achieve maximum employment.
A Decline in Consumer Confidence
Since the Covid-19 inception, there has been a dramatic shift in consumer confidence across all the U.S. states. In August, there was a drop in the Consumer Confidence Index from July’s 91.7% to 84.8. The nature and magnitude of the dynamics vary. These nuances have different impacts and insights for e-commerce companies that wish to learn about the unfolding pandemic and establish practical responses.
2020 Curveballs – Coronavirus, Government Money, National Protests, and Amazon Prime Day
The Impact of a Pandemic
The rough pandemic times have brought most of the country’s retail to a temporary, crashing halt. Only pharmacies, supermarkets, and other essential services have remained open. More and more stores continue to reopen their doors, but forecasters predict that operations will not go back to ‘normal’ any time soon.
Up to 25,000 stores are expected to shutter their doors for good by the end of the year, and the surviving brick-and-mortar retailers will continue combat heavy restrictions. This will result in a continued contraction in retail operations and a shift in their resources to the world of e-commerce.
Government Money & Stimulus Packages
The massive retail sales seen in March this year can largely be attributed to the $2.2 trillion relief package. If another package is released before the end of the year – including economic stimulus and unemployment benefits – expect an increase in consumer confidence and retail sales. However, we should anticipate a deeper decline in spending if the stimulus package fails in Congress and the current economy flatlining continues.
Nationwide Protests
Retailers countrywide experienced another blow during the recent pandemic months: nationwide protests. The nationwide unrest occasionally turned violent which significantly impacted the openings and closures of retail stores. To counter this, most consumers have shifted to e-commerce platforms to address their needs. This shift will create a larger audience for digitally native brands, but will also encourage former brick-and-mortar brands to shift their marketing strategies faster.
Amazon Prime Day Creeps on BFCM
Amazon continues to push aggressively for online sales dominance. This year, to try to capture more holiday spending, Amazon is adjusting their Prime Day and taking it closer to Black Friday and Cyber Monday. This is aimed at countering the holiday spending patterns.
A Shift in Consumer Behavior
With global travel restrictions, general health concerns, and safety guidelines to comply with, consumers have been forced to shift their shopping behaviors from brick-and-mortar retail to online faster than expected. Whether by necessity or by desire, most of these consumers may never return to their initial shopping habits even though they had never shopped online.
This shift has led brands to invest more resources to achieve a direct-to-consumer business approach. Established digitally native brands, on the other hand, continue to flourish. Even before the onset of the pandemic, e-commerce sales had the highest growth in retail sales in the country, standing at $600 billion. This represented 56 percent of the year’s overall increase in retail sales.
The global response to the novel coronavirus pandemic era continues to leave a supplementary effect on overall consumer behavior. Adapting to this monumental shift will ensure you come out on top.
Tighter Budgets, Bigger Incentives
As you begin building out your holiday plan, consider how loose or tight your customers budgets will be. When the economy is roaring, consumers are more willing to spend because they are anticipating stability in their income. With instability across the board, it will be harder to convince your customers to separate with their dollar. Creative discounting strategies will be very important to keep customer acquisition costs down and ROAS high.
Brace for Higher Holiday Season Costs
The post-pandemic era has seen a dramatic decrease in retail traffic. To counter this setback, most retailers have opted to divert a majority of their advertising resources to larger marketing platforms. Unfortunately, it would help if you braced for higher CPM’s thanks to the growing political spending as we head towards the elections.
There has been a general increase in ad spending by 12 percent over the initially projected $6 billion when it comes to political spending. Note that the Covid-19 situation may compound these values.
Key Takeaways
The ongoing Covid-19 pandemic has led to a strain in economic indicators as the economy continues to recover. This has slowed down purchasing significantly. Towards the end of the year, expect constraints in ad inventory supply. This will result from an increase in demand for ad inventory to move retail strategies online. Black Friday/Cyber Monday ad spend and the ramp-up of political ad spend will also contribute to this. In turn, there will be higher CPMs.
The post-pandemic era has also seen more consumer shift their buying behavior to purchasing online. This, in turn, will lead to a higher distribution. As expected, consumers will continue seeking the best deals. This means that you should expect cut-throat competition for consumer dollars throughout the holiday season. With more brick and mortar retails shutting down, it would help if you establish your holiday spending early enough to capitalize on this shortfall.
Do you need professional guidance to position your brand and win through Q4 and into the new year? Contact us today.