The festive period is well underway – and retailers are bracing for the holiday rush. As shoppers prepare to head to stores for some last-minute Christmas shopping, four experts explain to Consultancy.uk what the key trends will be this year, and how stores can prepare for them.
The Christmas trading period is often a key component to retailers’ financial year. Traditionally, consumers are willing to spend more than they do during the rest of the year, purchasing presents, food, decorations, trees, and more throughout the festive season.
But as consumers adjust to the difficult economic climate, retailers have had to adjust their offering too. There is more to succeeding this year than ensuring budget offerings for some shoppers, however. Challenges ahead of this year’s festive rush also include digital demand, supply chain issues, and a desire for an ethical option.
Shifts in supply and demand
According to Alister French, partner in Oliver Wyman’s retail and consumer goods practice, consumers who need to “become savvier in their purchase decisions”. Discount retailers and variety stores have thrived amid the high-inflation environment of recent Christmases as a result – while manufacturers have also “been adjusting pack sizes and specifications to maintain key price points despite the challenges posed by inflation.”
And even as French notes that some consumers are “showing signs of frugality fatigue, leading to some returning to full-service supermarkets”, he adds that “in the long-term, more consumers appear comfortable shopping at discount stores when it makes the most sense for them”. At this moment, then, “it is particularly advantageous to be a discounter.”
Retailers will not only face challenges relating to shifts in consumer demand, though. French observes that “cyber-attacks have targeted replenishment systems and their providers, as criminals and other malicious actors have recognised the chaos that can be created by disrupting the supply chain”, while geopolitical tensions continue to result in “a choke point for goods coming from Asia”. Additionally, “all labour-intensive aspects of production, supply, and retailing are facing increased pressure due to the rising costs associated with employing people”, while there is also “an ongoing need to reduce the carbon intensity of sourcing and supplying goods.” How can retailers position themselves to adapt to all that?
French concludes, “The challenges faced are industry-wide and societal in nature, meaning that all competitors are in a similar situation; however, those who are more challenged will find it tougher to adapt. Successful retailers will need to rethink their product offerings, simplify their overall range, and reinvent processes for greater efficiency. Ultimately, cultivating a creative and dedicated workforce that works collaboratively towards a clear goal and is able to embrace the opportunities presented by data and AI will remain crucial, regardless of the market segment they are targeting.”
Digital expectations
Julian Skelly, senior vice president for retail at Publicis Sapient, also notes that demand is shifting, explaining, “With value-driven promotions, an ethical focus, and digital transformation at the forefront. Shoppers are adopting “soft shopping” habits, spreading purchases across several months to secure better deals, while participation in Black Friday and Cyber Monday remains strong, fuelled by resilient spending from high-income households. Experience-based gifting and the demand for sustainable, ethically sourced products continue to shape purchasing decisions, especially among younger generations.”
Those changes go hand in hand with new technological expectations for retailers. Skelly notes that the 2024 peak shopping season has already revealed key shifts in consumer behaviour to that end, adding that this highlights the “importance of embracing digital innovation, ethical values, and seamless customer experiences to meet the expectations of the modern, tech-savvy shopper.”
Skelly concludes, “Online sales surged by 15%, driven by the rise of “buy now, pay later” (BNPL) options making big-ticket items like electronics and furniture more accessible,” Skelly contends. “The growing influence of AI-powered personalisation and predictive analytics has enabled targeted promotions and dynamic pricing, encouraging consumers to act during flash sales. Digital transformation is proving to be a great equalizer, giving smaller retailers access to enterprise-level tools like AI-driven marketing, supply-chain traceability, and dedicated holiday order platforms. While AI’s impact is still maturing, its role behind the scenes — from recommendations to demand forecasting — is quietly reshaping retail.”
Change and tradition
Not all traditions are being dispatched with, though, and there is still a need for an excellent in-store experience. According to Maia Wapnick – vice president for strategy at Hypothesis, an Elixirr company, “while Gen Z and Millennials are creating new traditions – skipping Thanksgiving turkeys and foregoing holiday cards – they’re surprisingly holding onto one: holiday mall shopping”.
Citing a poll by Harris, Hypothesis contends that 68% of Gen Z and Millennials consider in-person shopping a cherished holiday tradition, pointing to “less stress and greater convenience in-store compared to online”. Similarly, the “instant gratification and social, tactile experience” drew 126 million US consumers to stores Thanksgiving Weekend, an increase from 121.4 million in 2023. Physical stores are not the only ones braced for change, though, amid a broadening peak period.
Hypothesis notes, “Shoppers are planning earlier than ever, with extended promotional periods and prolonged shipping timelines of Chinese players like Shein and Temu – which are expected to account for 21% of purchases… The longer deal periods can lead to procrastination or decision fatigue.”
Fatigue of this kind is leading to “cart abandonment”, with around 70% of carts never clearing their digital checkout. In this case, retailers must “address non-converting carts creatively, with personalised recommendations and discounts and transparent pricing.” And social media could also help, having evolved into “a shopping powerhouse, blending discovery, entertainment, and instant purchase”. Hypothesis points to TikTok Shop as a leading example, with a 24% activity surge, demonstrating the growing role of social commerce this holiday season.
Again, Hypothesis also agrees that value will be important this year, as pressures on consumer spending power remain. As a result, consumers are “increasingly gravitating toward gifting meaningful experiences over physical goods”, while retailers will also have to contend with “the growing popularity of dupes and cost-effective alternatives” – heightening the pressure on brands to “demonstrate value and differentiate through quality, storytelling, and emotional resonance.”
Tax and spend
Amid the busiest shopping quarter of the year, retailers are hoping for a continuation on the 5% boost in Black Friday sales seen, versus last year, according to Farah Thalji, senior director, Simon-Kucher. But despite those positive early signs, as optimism on the economy remains somewhat mixed, Thalji adds that “many businesses need to balance their growth management strategies to cater to a mix of indulgent yet thoughtful spending by consumers.”
Thalji continues, “Retailers that win will have invested serious effort into price management through multiple approaches, with product range being a key lever. This means ensuring sufficient price points exist within the assortment to retain shoppers who are being more discerning with their spending. Strong seasonal gifting options that focus on value products or own-brand items should do well, but retailers will be trying to balance that with ensuring enough appealing items to keep shopper basket value high.”
Consumer spending power will not be the only area of concern, though, and particularly, “many retailers will be mulling price increases in the coming months after the autumn budget announcements about increased taxes and wages”. But there has not yet been time to calibrate since those announcements, so going into this Christmas season, Thalji believes “many are bound to continue doubling down on promotions, with strong messaging of 50%+ discounts”. Looking ahead to 2025, however, businesses will need to reconsider their RRP vs discount strategy, and be “increasingly sharp in their promotion targeting to ensure strong ROI and protect challenged margins.”