Will Traditional Retailers Get a Frosty Reception This Holiday Season?

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Rosy-cheeked shoppers in snow boots rushing from one store to the next. Jam-packed malls glimmering with holiday lights and garlands, resounding with Christmas songs. Anxious parents waiting in ridiculously long lines to get their hands on the hottest new toy. Are these images of holiday shopping now out of date – particularly in a year that has seen one brick-and-mortar retailer after another announce bankruptcy filings and store closings or go out of business altogether? Do consumers increasingly prefer to order whatever they want, whenever they want it throughout the year, with just a few taps on a screen?

It’s kind of a false distinction, according to Wharton marketing professor Barbara Kahn. Although a lot more shopping overall has moved online in recent years, many traditional retailers strive to make the experience with their brand seamless between online and offline. Kahn adds that while online shopping has “definitely changed” in-store shopping, and many more purchases are being made online, “it doesn’t mean the physical store is not relevant anymore.”

Wharton marketing professor David Bell agrees. “I’m not really of the opinion that online has to be a substitute for offline…. If you do it correctly, you can turn them into supplements.”

Often consumers will browse or order electronically and then visit a store to pick up their merchandise, Kahn says. A big advantage for the retailer is that once the shopper comes in, there are opportunities for incremental sales, meaning the customer buys more items than he or she had originally intended. The well-known “impulse buy” in which you grab a candy bar strategically placed near the register to plunk down with your order is an example of this.

Incremental sales also can involve more expensive items, says Bell. “If I go online and buy my niece a bracelet at Tiffany.com and I have to go in and pick it up, when I get in there I might be stimulated to buy something else.” He notes that online retail can really help in-store retail as a “pretty big traffic generator.”

Incremental sales can occur during online shopping, too, says Kahn, but they’re much less likely. “Serendipity is more likely to happen when you’re walking around in a physical store.”  And if the retailer can create an enjoyable holiday atmosphere to walk around in, that further increases the chance that people will make impulsive purchases.

Everyone Still Needs to Buy Gifts

Moreover, although today it’s easy and convenient to order things online all year round, shopping around the winter holidays isn’t going away anytime soon, say the experts. This is because our fundamental social behavior around times such as Thanksgiving, Christmas, Hanukkah and other winter holidays hasn’t changed. “People are engaged in gift-giving, getting together with family and friends,” says Bell. “To the extent that tradition doesn’t disappear or wane, there’s still a fundamental occasion or behavior behind a reason to shop.”

“If I go online and buy my niece a bracelet at Tiffany.com and I have to go in and pick it up, when I get in there I might be stimulated to buy something else.”–David Bell

Kahn makes a similar point about why people continue to head to stores on Black Friday. It isn’t just for door-busters: “The day after Thanksgiving, a lot of people are home with nothing to do after having eaten a big meal, and they want to go out.” She also says that in-store shopping gets a boost around the holidays because many people buy gifts last-minute, well after online purchase shipping-date cut-offs. “If you look at the biggest shopping days, they’re still the two days right before Christmas.” People procrastinate, she says, and human behavior doesn’t change even though the shopping channel changes.

Certain products, too, are reliably purchased every year around the holidays. Bell says that one obvious example is Christmas sweaters. “There are products of that nature for which the holiday season is a big part of the demand.” He mentions that one enterprising retailer, an online company called Tipsy Elves, sells self-proclaimed “ugly Christmas sweaters” as well as apparel entertainingly decorated for Hanukkah, Thanksgiving, and even St. Patrick’s Day.

Both Kahn and Bell note that while traditional retailers continue to invest in in-store holiday promotions, they appear to be doing more (and should be doing more) than just dusting off last year’s Christmas garlands to wrap around the pillars. One example they both cite is Walmart, which is creating a buzz by throwing 20,000 holiday–themed parties in its approximately 4,700 stores.

The parties reportedly feature opportunities for kids to play with the top new toys, “holiday helpers” to assist customers in navigating the store, stickers for children to mark toy catalogs with what they want, product demos, party-planning advice for adults, and more. Visits with Santa will be part of the festivities, a tradition which Kahn notes may be the earliest known holiday retail promotion. “It started years ago as an event to draw people into the store with their kids because it’s fun. And while you’re there you go shopping.”

Bell believes that Walmart will get “tremendous foot traffic” out of these parties and that it will be a great opportunity for incremental sales. Other companies to watch when it comes to creative in-store holiday promotions are Nordstrom and Sephora, he says. Bell notes that these businesses generally use their in-store footprint very effectively so they’re likely to do so around the holidays, too.

“If you look at the biggest shopping days, they’re still the two days right before Christmas. People procrastinate.”–Barbara Kahn

A more radical approach to the holiday season, say the experts, is for companies to think about how they might invent their own special days. Two online retailers have had tremendous success with this, demonstrating that customers do respond to the idea of holidays or cyclical events (provided, of course, that good deals are also involved). Though Chinese e-commerce giant Alibaba didn’t really invent the November 11th holiday called “Singles Day” — a kind of anti-Valentine’s Day — the site has taken it from a little-known celebration to a retail phenomenon. This year, Alibaba’s Singles Day sales hit a jaw-dropping total of $25.3 billion, more than 40% higher than last year, according to The New York Times. Bell points out that Singles Day is the number-one shopping day in the world in terms of volume.

Amazon started something similar in 2015: “Prime Day” on July 11th, during which prices are slashed for Amazon Prime customers. Amazon has reported that sales this year were up more than 60% over the previous Prime Day, and surpassed the company’s sales for either Black Friday or Cyber Monday of 2016. It’s also notable that Amazon generated this business in the middle of the summer, normally a slow time for retailers.

An example of an innovative way that traditional retailers might handle the winter holidays — cited by Wharton marketing professor Peter Fader — was the outdoor clothing company REI’s unusual decision two years ago to start closing on both Black Friday and Thanksgiving. Fader says REI has promoted the fact that they are giving their employees the time off, along with the idea that customers and their families could spend Black Friday enjoying the outdoors instead of shopping. “They got all kinds of great buzz for it,” says Fader.

REI has enjoyed strong growth over the past two years despite giving up those sales days, according to Fortune. Although, the article notes, it may be more able than many retailers to absorb a short-term hit to its sales because it’s a co-op rather than a publicly traded company.

Fader thinks the REI idea is a good one. “There’s been a lot of talk this year as we approach the holiday season that some retailers are trying to back off a little bit, take their foot off the gas.” To Fader, this demonstrates that retailers may be realizing that “we really need to be good [businesses] throughout the season, that it’s not all resting on one day.”

Showing the Love to Customers — But Only Your Best Ones?

Overall, Fader thinks retailers need to break the habit he perceives of blindly encouraging frenzied holiday shopping. “Black Friday is a terrible, terrible thing [for retailers],” he observes. “It’s good for revenue but bad for profits, and even worse for long-run profits.”

“Black Friday is a terrible, terrible thing [for retailers]. It’s good for revenue but bad for profits, and even worse for long-run profits.”–Peter Fader

He explains that back when retailers had no real way to track who was coming into their stores, their attitude toward having a big sale would naturally be, “Hey look! We’re selling a lot of stuff, this is fantastic.”

“But in an era where we can now tag and track individual customers, and we want to think in terms of future value that will be created or enhanced, Black Friday makes no sense at all,” Fader says. The tracking methods he refers to include online shopping patterns, loyalty programs, cell phone tracking, and biometrics such as facial recognition systems and fingerprint identification.

Fader notes that instead of slashing prices for everybody and trying to get as much foot traffic as possible, retailers should use the holiday season to thank and reward their most loyal customers. In his view, stores should not make their top customers wait on long holiday lines staffed by frazzled cashiers, being treated no differently from the “worst customers” who only drop in around the holidays to cruise for steep discounts. “It’s insulting and it actually hurts their value [to your business],” he says. He suggests offering this group perks like special opening hours, extra attention from the best salespeople and VIP events with food and drinks.

“It’s just much easier to know who’s buying what, when and for how much,” Fader says of customer analytics. “Retailers should leverage that information.”

Kahn, on the other hand, believes that evaluating customers through analytics has some limitations. It’s good at predicting what you’ll buy when you head out to shop for yourself, but not when buying for others. “In holiday shopping, a lot of what happens is you’re shopping for other people, and while you’re there you find something you want for yourself that you didn’t expect. Analytics are not going to predict that.”

She also doesn’t necessarily think retailers should pull back from the idea of attracting as many holiday shoppers as possible. In Kahn’s view, “This last quarter of the year is very important for retailers, and it always will be.”

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