Overall Holiday Spending Forecasts Less Relevant as Retailers Focus on Distinct Consumer Segments, According to PwC US

Tailored Engagement with Millennials, "Survivalists" & "Selectionists" Will Define the Winners & Losers this Holiday Season

06 Oct, 2015, 09:00 ET from PwC US

NEW YORK, Oct. 6, 2015 /PRNewswire/ -- For the 2015 holiday shopping season, the dollar figure forecast on consumer spend is less relevant for retailers, according to PwC's 2015 Holiday Outlook. Rather, a deeper understanding of the complex retail landscape and the focus on building long-term shopper relationships is how retailers will define success this year.

The current retail environment is being driven by income bifurcation, demographic transitions, and evolving purchasing behaviors from technological advances. While the majority of consumers will likely spend the same or slightly more this holiday season compared to last year, the "survivalists" (shoppers with household incomes less than $50,000 per year) continue to face a challenging economic environment and have indicated that they will be spending less. Coupled with the fact that millennials – which represent 75 million people – are now a major force in the consumer markets and spending a larger share of their holiday dollars on experience-related purchases, and selectionists (shoppers with household incomes more than $50,000 per year) have a greater interest in distinctive brands and innovative products. 

PwC forecasts that today's consumer preferences and economic realities will likely make the 2015 holiday season one of the most interesting we have seen in years. This dynamic environment creates a clear opportunity for retailers to succeed or fail. The winners will likely be successful by strategically engaging the millennial and "selectionists" shoppers with compelling brands, experiences, and innovative products or by serving the survivalists with an emphasis on value through strategic pricing, discounts and promotions.

"While our survey found that on average, consumers plan to spend $1,018 during the 2015 holiday shopping season, retailers are less concerned with these types of predictions this year and have prioritized engagement with the distinct shopper segments and building long-term relationships," said Steven Barr, PwC's U.S. retail & consumer leader. "Millennials will likely be spending a large share of their holiday budget on experience-related purchases, while selectionists will likely be focused on innovation and purchasing the leading brands and survivalists will likely again be looking for the best deals. The leading retailers are employing aggressive strategies in both the physical and digital channels to establish meaningful relationships with these segments – which is why we believe the biggest winners of all this holiday season will likely be the consumer as it is, without a doubt, a buyer's market."

PwC outlines 10 big trends that are expected to drive the 2015 holiday shopping season:

  1. Holiday spending: is the glass half full or half empty? Consumers are cautiously optimistic this holiday season with 53 percent indicating they will likely spend about the same as last year and 32 percent indicating they will likely spend more than last year. Of all age groups, young millennials – aged 18 to 24 – indicated they are the most optimistic.
  2. Income levels drive survivalists and selectionists Retailers are dealing with two very different categories of shoppers. Survivalists want the best deals as they simply have not felt the benefit of an economic recovery; consequently, they will likely spend less this holiday season than they did last year, with a preference for gift cards. Selectionists have a distinctive brand appetite and are more likely than others to spend on travel, entertainment, and the latest in personal electronics. They're avid online shoppers and plan to spend slightly more this holiday season than last year. Overall, the most popular items this holiday season will likely focus on health and wellness, athletic leisure, and innovative products and will likely fall within the following categories: gift cards, toys, clothes and shoes, accessories, and home electronics.
  3. Millennials matter Millennials (aged 18-34) are the retail prize this holiday season. They are primed to potentially spend $63 billion this holiday season, which would be more than they spent last season. And they crave diverse experiences: 52 percent of their holiday spending will likely go toward experience-related purchases such as travel and entertainment, versus 39 percent for older shoppers. Interestingly, millennials ranked online shopping lower on their list of preferred channels after department stores, mass merchandisers, and specialty stores than older shoppers. This is in keeping with their thirst for experiences as they want to be able to see, touch, and feel the merchandise.
  4. Savvy shoppers choose discounts, promotions All shoppers love a great bargain. In fact, the majority of holiday shoppers surveyed said price is a major factor influencing their holiday shopping decisions. But, there are differences when looking at the survivalists and the selectionists. Ninety percent of survivalists responded that price is the number one factor influencing their holiday shopping decisions while nearly 60 percent of the high-end of the selectionists indicated quality merchandise as a major factor in their holiday shopping. Shipping figures prominently in online purchasing decisions: 83 percent of shoppers said standard free shipping would make them extremely likely to make a purchase. Free returns, both in-store and online, also play a role in shopping decisions with 67 percent of shoppers wanting to return online purchases in-store. 
  5. Beyond Black Friday . . . the long reach of the shopping season All the anticipation around and build-up to Black Friday is less relevant as shoppers are seeking deals earlier in the season. As a result, the ever-expanding holiday shopping season includes late October and the entire month of November; consumers will likely complete more holiday shopping (29 percent) before the start of Black Friday week than during (26 percent).
  6. The power of brand Eighty-six percent of consumers will likely only shop brands they trust. Millennials are twice as likely to shop brand leaders as older shoppers, energized by the thrill of innovation. Generation Z is even more brand-savvy as their awareness of entertainment, computer, mobile, gaming, and social media brands is upwards of 80 percent.
  7. It's the interaction; not the transaction Almost 60 percent of consumers will likely shop in-store this holiday season because they want to see, touch, and try the merchandise. In fact, so many shoppers want an in-store experience that some previously online-only retailers have established a physical store presence. And, the leading retailers are improving their in-store experience to surprise and delight the consumer.
  8. Digital growth continues its upward trajectory Sixty-six percent of retailers plan to increase their digital investment in the next 12 months and 77 percent expect a 16 percent increase over last year in digital revenues this holiday season. And, PwC believes the leaders in online shopping will likely experience 40 to 50 percent increases in digital revenues. Areas of investment include mobile technology, advanced logistics aimed at faster real-time delivery, and enhanced purchase methods such as buy online and pick up in-store. However, consumers draw the line at using their phones for mobile payment: 61 percent prefer using traditional payment methods such as cash (preferred by survivalists), credit card (preferred by selectionists), debit card, gift card, or personal check.
  9. What role does cybersecurity play? More than 40 percent of consumers say a security breach in the last 12 months would likely affect their holiday shopping at a particular retailer. Millennials are even more concerned (52 percent) than shoppers over 35 (38 percent). Well aware of consumer concerns, both retailers (70 percent) and manufacturers (60 percent) are shoring up measures to address cybersecurity.
  10. It's a mad, mad world The global economy has recently experienced significant volatility in the equity, currency and commodities markets. Wages in the US have yet to break out of their low growth slump especially for the survivalists and negative headlines can weigh heavily on consumer sentiment. Retailers and manufacturers rank the economy as the greatest impediment to a successful holiday shopping season, followed by consumer confidence.

For more information and to download an electronic copy of PwC's 2015 Holiday Outlook, visit http://www.pwc.com/us/2015holidayoutlook. A video of the top-line findings can be viewed here. And for fresh insights throughout the holiday season, be sure to follow PwC's U.S. retail & consumer leader, Steven Barr, on Twitter at @Steven_J_Barr – and also follow the hashtag #HolidayShopping.

PwC's 2015 Holiday Outlook analyzes consumer-, retailer-, and manufacturer-reported data – and overlays the findings with additional PwC research and analysis. PwC's national survey was conducted between July and August 2015, which polled 2,000-plus consumers, as well as 230 retailers and manufacturers. 

For more information on PwC's Retail and Consumer practice, visit http://www.pwc.com/us/en/retail-consumer/index.jhtml.

About PwC US
PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms, which has firms in 157 countries with more than 195,000 people. We're committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.com/US.

© 2015 PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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