How Retail Stores Compete With Amazon | Barbara Kahn

How Do Retailers Compete With Amazon During the Holiday Season?

Dan Loney: We are towards the end of the year. What’s your feel for the retail landscape right now?

Barbara Kahn: Everybody’s always talking about what’s going to happen with holiday shopping because it’s so important to retailers, so there’s always speculation. There are a couple of trends. One, we know the promotional environment has started even earlier this year. Amazon Prime Day on Oct. 10 accelerated Walmart, Target, Amazon, all of those doing deep discounts, and made the consumer really price sensitive. The question is, how price sensitive are they going to be going into the future holiday season?

The one thing that people usually do when they look at holiday seasons is they look at trends. The problem is that the past few years have been completely unpredictable, so it’s really hard to make a forecast. If you start with 2020, what did the holiday season look like then? Everybody was buying home stuff because they were stuck in their house. We saw those numbers go way up.

In 2021, we got out of our houses, and you started to see a lot of purchase of apparel. We can’t wear our pajamas anymore, so we’ve got to buy new clothes. In 2022, you saw a lot of people starting to move their money towards experiences and to travel. Now I’m out of the house. I’m actually going to go someplace.

What does that mean for 2023? Who knows? You’re seeing these trends that are so different, it’s really hard to predict what people are going to buy this year.

Loney: You mentioned Amazon Prime Day. That event has had so much impact on the mindset of retail and consumers in how we think about when we shop for the holidays.

Kahn: You’re right. There are two factors there. One is, you think about holiday shopping earlier. That isn’t so bad for retailers because we’ve got delivery issues, supply chain issues. If you can stretch the shopping season so it’s a little bit longer, it’s easier to even out demand and deal with supply chain kinds of issues. So, that’s not a terrible thing. But the really bad thing about it is the focus on discount, discount, discount. For me personally, as a marketing expert, I would say, “What are you doing? Why would you want to do that?” Because if you can get people to reinvest in the brands that they believe in – and we have evidence that people love the brands they love — why should they buy them on discount?

I remember way back when in the recession of 2008–2009, luxury was so worried about people not shopping that they discounted their prices. And it took a really long time for them to get people back to buy luxury brands at full price, which is really what you want them to do. So, I think this Amazon Prime Day, and everybody following and accelerating, really makes people very deal sensitive. And that’s a problem.

Loney: You mentioned brands, so let’s touch on that for a second. Because there seems to be a greater importance by companies on their brand right now. In many cases, a lot of the issues outside of the company, a lot of the cultural issues, are factoring into brand focus.

Kahn: I’ve been saying this for a long time: People have been predicting the death of brands just forever, and this is just not happening. Brands are super, super important. You look at survey after survey, consulting firms, all this other information showing that that brands that people love, they love. Really strong brands continue to do really well, and they kind of fight against this promotional environment.

You’re seeing some really interesting new trends in branding that I think are worth looking at. Just recently, Lululemon announced a collaboration with Peloton, which is an interesting thought. Lululemon’s a very strong brand. Peloton, who knows? There are people who love Peloton. But the idea of getting these two brands to work together, that’s an interesting idea. You saw with Target and Ulta; that collaboration was very successful. The idea of joining brands together and creating something new and exciting through the collaboration is an interesting new trend that we’re seeing in branding.

Loney: With that collaboration specifically, the most interesting part is that Peloton is kind of a recovery brand. With as much problem as they have had over the last couple of years, they’re trying to rebuild their brand almost from the ground floor.

Kahn: But these collaborations are strategic in wily ways. What Peloton has is really good content, people who love their instructors, and who still have this really strong feeling about the Peloton. Lululemon, which is a very strong brand and doing super well, can give some sustenance to Peloton, to your point. But Peloton has something sexy to offer in the collaboration.

Another really interesting collaboration is the Taylor Swift-NFL collaboration.

Loney: An unofficial collaboration, but yes.

Kahn: It’s the idea of looking for the sexy in one brand, linking it to something else, and then creating something brand new and something fun.

Loney: I don’t know if Travis Kelce would say that exactly, but we get the idea. Now, here we are in a time where the economy is going up and down, and consumers are watching how much they spend. I think the impacts of the economy right now become very interesting for what we’re going to not only through the holiday season but also next year, especially if the Fed holds rates higher for longer.

Kahn: It’s so hard to predict because you’re seeing things going in two different directions. Inflation has been curbed somewhat. Employment is still strong. There’s some indication that consumer confidence is holding steady and maybe even rising a little bit. But on the other hand, people are very worried about the possibility of recession. The student loan issue really affects a lot of discretionary income. There’s a lot of question on how people are going to spend. And that’s also why we look at what happened in the past, for example.

During COVID, people saved a lot. And then when they started coming out of COVID, they had more of that money. But then they started traveling in 2022, and so we don’t know how much savings is still left. Therefore, to accurately predict what’s going to happen with holiday spending is kind of hard to do. Mastercard came out with a prediction that they think holiday spending is going to go up about 3.7%, which isn’t huge but solid. And they’re saying you’ll see it mostly in restaurants, hospitality, maybe consumer electronics. We’re not expecting a big growth in apparel, but it should go up a little.

What Are the Latest Trends in Retail?

Loney: As you look forward into 2024, what are some of the areas of focus?

Kahn: I think you’re seeing two trends that are exactly the opposite, but they’re both going forward. One is this idea of fun and a lot of experimentation in branding. Macy’s just announced they’re going to lean into retail theater. There’s this idea of new, fun things to try to get people to be excited and believe in their brands, and invest in the fun of shopping, and the fun of buying brands at full price.

On the other hand, we see incredible strength in Shein, in Temu. Walmart’s doing well, Target, Amazon, which we were talking about at the beginning. So, we are seeing a lot of this price sensitivity on one hand. And maybe people are going to be looking for the deals and looking for a way to stretch their dollar. And on the other hand, the brands that get it right, that hit the pulse, that really tickle people’s fancy, I think will be rewarded as well.

Loney: How does the back-and-forth between e-commerce and bricks and mortar continue to play out?

Kahn: I think that’s also this new notion that everybody’s talking about — omnichannel. It’s really not one or the other. Again, looking towards the past to predict for the future, during COVID, people thought everybody was going to shop online forever. That’s clearly not true. As soon as we were allowed out of the house, we were back into the stores. Some of the numbers I saw recently is that over 90% of grocery shopping is being done in the physical store, which is definitely not what we predicted during COVID.

But I think what you’re seeing now is really this back-and-forth. Some things are digital, some things are in the store. It’s a function of where the consumer wants to be. I think we’re going to see a lot of growth in mobile shopping if people make it easier. There’s a lot of this idea in gamification, augmented reality, and those kinds of things. If it was maybe a little bit overhyped by Facebook or Meta, a lot of people believe that there is a lot of excitement in these virtual environments and a lot of opportunity for commercial gain. But it’s really not going to be one or the other. I think people may still want to go sit on Santa Claus’s lap, you know?

Loney: You also have to thrown in AI and the impact that it will have on retail as we move forward?

Kahn: That’s really hard to call exactly how that’s going to affect things. Even here in education, trying to understand what the role of ChatGPT. Most of my colleagues think it’s here to stay, so we’ve got to think about it as a tool and how to use it to make the customer experience better. I think you’ll see a lot of creativity. I think you’ll see people trying to use it in a way that maybe makes the shopping experience more personalized, more enjoyable. Some of this AI has been shown to really spur on innovation.

A lot of the numbers around holiday shopping, what gets people into the store, the trigger is gifting. The first thing to think about is, what makes for good gifts? Traditional gifts, buying somebody a sweater still makes sense even if they have 20 sweaters. You’ll see some of that.

The other interesting thing about holiday shopping is people buy one for you and one for me. They buy for themselves, also. If you make the shopping experience more fun and people want to engage in it for one reason or another, they’re more likely, yes, to buy more gifts, and maybe to buy more things for themselves as well. And that could help spur on shopping.

Loney: I guess the other side of that is how much discounting retailers will do? That BOGO philosophy.

Kahn: It’s a little bit of a game of chicken, you know? At one hand, they’re trying to manage their inventory and make sure they’re not stuck with things leftover. Because once Christmas hits, everything goes down in value, and then you know you’re going to discount. You want to try to hold your price as much as you possibly can before the holiday season is over. On the other hand, you don’t want to be left with all this inventory, so you’re moving things along. And if you can do it in a gamification way kind of, or buy one, get one, that kind of mitigates the total promotional environment and gives you a reason to buy more.

Loney: How do consumers experience gamification?

Kahn: It’s things like these ideas of competitions, or buying something to win something, or some of these lottery ideas, or streaks. Keep your streak going. The other idea that you see in gamification now is co-creation, creating your own universe. You’re seeing some of the shopping be experiential.

The other big trend is digital goods. If you’re going to buy skins for your avatars, or something like that. There’s some evidence, which is kind of shocking to me, that the younger generation values digital goods as much as they do physical goods, in some cases. How all of that works, and what you’re purchasing for, that’s kind of an interesting wrinkle.