Q4 Outlook: Consumer Mindset Is The Wild Card

Q4 Outlook: Consumer Mindset Is The Wild Card

The consensus opinions are starting to show up on the retail fourth-quarter calendar. With Amazon’s confirmation of Prime Day and Target’s follow-up of its Deal Days, it appears that the season will start on Oct. 13. It’s fairly well accepted that holiday spending levels will be flat compared to 2019 – which, in the middle of a pandemic, is nothing short of miraculous. And the digital-first economy will drive the difference between success and failure for many retailers.

But these are the easy points. What’s not so easy is to predict the nuances – and that’s where the next two weeks will fill in the blanks when it comes to planning for Q4 2020.

The first nuance concerns exactly how much consumers will spend. Most predictions, as stated, show a flat spend level overall. But the consumer mindset will be the key as the pandemic continues to rage and the economy continues to look spotty.

According to Charles Lindsey, associate professor of marketing and consumer spending specialist at the University of Buffalo School of Management, two kinds of consumers will show up for the holiday: the cautious and the sentimental. As he told PYMNTS, the cautious will hunt for bargains, spend accordingly and keep gift-giving on a practical level. The sentimental consumer will look at the misery 2020 brought in terms of the pandemic, social strife and political tensions and will have the mindset that “at least the holidays will be worth it.” It’s also probable, said Lindsey, that consumers who open their wallets a bit wider this year will spend some money saved from a lack of travel and dining out.

Lindsey noted that most retailers will notice four pervasive trends this year:

  1. There will be an earlier start running promos to gain an early advantage when competing for consumers’ somewhat stagnated spending.
  2. Consumers will be more practical overall when it comes to their spending – both for themselves and others.
  3. The digital-first economy will continue to dominate retail.
  4. Consumers are currently saving their money at more than twice the rate they did a year ago.

“Another factor is family celebrations,” Lindsey said. “The vast majority of people have indicated that those celebrations will look very different. They might be canceled. They might be smaller. And in terms of spending around those celebrations, I think consumers have indicated that they’re going to spend less on big events and will also cut back on gifts. That could put a damper on the overall consumer mindset.”

Experts expect an increase in demand for products and tangible gifts as opposed to experiential gifts (like concert tickets and events), as people are unsure of what the year ahead holds. “We’ve already seen this happen over the recent Mother’s Day and Father’s Day holidays, where popular general merchandise categories saw sales lift for the week … two and three times what it was in 2019,” Marshal Cohen, chief industry advisor of retail at The NPD Group, said in a release.

When retailers look at the calendar this year, they see a series of opportunities wrapped in events, whether it’s Prime Day, Amazon’s Black Friday series or traditional Black Friday. Lindsey sees a bit of a mess. He predicts that the number of occasions available to retailers will lead to a “wild west” of flash promotions, deep discounting and maybe even more events hitting the calendar – but he also believes that flat results compared to 2019 is a big win.

“The good news is, it doesn’t look like we’re going to have negative growth,” he noted. “We can take some solace in the fact that we’re in the midst of a pandemic and a struggling economy, and it still looks like we will  have positive growth – probably driven largely by online sales, where we’re looking at maybe an increase of 25 to 35 percent over last year.”

One of the other nuances will be the in-store customer experience, which has become an also-ran in this era of contactless interactions. At retail research company Medallia, the prevailing idea is that brick-and-mortar retail will have a chance to reinvent itself.

“Adopting a mindset of how to refashion vs. replace the physical store shopping experience will be what differentiates winners and losers in retail this holiday season,” noted Medallia’s blog. “Shoppers will still flock to the stores. For some, it will look like a quick, contactless curbside pickup, while for others it will come in the form of an exclusive, private appointment (from a safe, social distance of course). Regardless of how they choose to engage at physical locations, their expectation of seamless, highly personalized experiences remains unchanged, if not perhaps heightened, given the emotions that naturally come with the holiday hustle and bustle.”