Turmoil, Deals and Sociability
As we prepare for the 2011 holiday season, online and offline data confirm what we already know: consumers willingness to spend this year is up in the air.
It was reported last year that Americans were spending like it was 2007 again at the end of the holiday season. Analyzing the traffic to online retail sites for the 2010 holiday season, data from Experian Hitwise, a division of Experian Marketing Services, told a promising story. Black Friday traffic surged more than 13 percent above that of the previous year, for example. By the day after Christmas, however, that gain had eroded to only 3 percent. Fast forward to the week ending May 28, 2011, when visits to the top 500 retail websites was up only .5 percent from the previous year.
One of the challenges in equating online traffic data with our nation's economic health is that in good times visits to online retail sites increase as consumers are more likely to open their wallets. When times are tough, visits to online retail sites, you guessed it, also go up as consumers leverage the web as a tool to shop for better prices, stretching their spending dollars. At Experian Marketing Services, we've created our own Consumer Expectation Index to help unravel how consumers are truly feeling about their economic future.
We've added the ability to view that data through specific lenses, such as the economic outlook of U.S. consumers that identify themselves as online purchasers. For this year's first quarter, our Consumer Expectation Index for all U.S. adults has ranged between 87.8 and 96.8 (the index's baseline of 100 was set in 2004). During that same time period, adults that have identified themselves as online purchasers ranged from 89.9 to 99.2. If you examine the history of the overall index compared to online purchasers, you'll find an interesting pattern. Historical data surrounding consumers economic expectations reveals that prior to the summer of 2008 and from the first quarter of 2010 the subset of consumers who purchase online have traditionally been more optimistic about the economy than the population in general.
As we examine data from the first quarter of 2011, the gap between online purchasers and the general public continues to widen, with online purchasers growing more optimistic — which could be a sign of another healthy holiday season. So while it's too early to tell how the 2011 holiday season will play out, the growing positive gap for online shoppers compared to the general public indicates that any increase in online traffic compared to last year is a positive sign for the upcoming buying season.
3 Predictions
Here are three predictions for the upcoming holiday season:
Prediction No. 1: Affluent consumers are now budget-conscious shoppers. Comparing the 2009 holiday season vs. the 2010 holiday season, the fastest-growing categories of sites in our Retail 500 Index — which includes the top 500 visited online retail sites — were comparison shopping sites, daily-deal sites and websites for large multichannel retailers.
Our Shopping and Classifieds category also indicated that several newcomers to the comparison shopping industry appeared on the scene between the last two holiday seasons. Price-comparison sites and 2010 internet phenoms Groupon and LivingSocial (plus the hundreds of group coupon knockoffs) represent a continuing consumer trend to commoditize products and services and push the discounting envelope to encourage trial through 50 percent off deals.
As the practice of deep discounting and using the web to find the best possible deal gains momentum, one trend continues to persist: The demographic that indexes the highest for online bargains continues to be the most affluent segments of our society. In fact, when you compare visits to retail coupon sites and discount code aggregators, there's a strong positive correlation. Apparently the more you make, the more you strive to save online. Affluent Experian Mosaic segments like Upscale America and Affluent Suburbia represented the largest share of visitors to the Retail 500 Index for the 2010 holiday season, further reinforcing this trend.
Prediction No. 2: Black Friday is a month not a day. While Thanksgiving weekend remains the kickoff to the holiday shopping season, the phenomenon of Black Friday continues to grow each holiday season. In October 2010, U.S. online visits to a category of Black Friday deal websites increased 12 percent compared to the previous year. In addition, Black Friday searches were up 3 percent, signifying consumer interest peaking earlier in the holiday season.
Retailers need to continue to put an emphasis on the actual day of Black Friday, but also start to take advantage of consumer eagerness to find leaked deals throughout the month of November. The availability of deal information really drives demand, so as soon as the deals are posted consumers are ready to start their holiday shopping research. Who are these consumers and where are they coming from?
During previous holiday seasons, nearly two-thirds of the early visitors to Black Friday websites were under the age of 34 and tended to skew female. Search referred over half of the total visits to Black Friday websites. All of this activity culminated on Thanksgiving Day as retailers received the highest share of traffic from rewards and directories websites that day. The downstream traffic from search engines and email to the top 500 retail sites peaked on Thanksgiving Day and Black Friday in 2010, creating a perfect scenario heading into the weekend and Cyber Monday.
Prediction No. 3: Increased social influence on retail. Look for group buying, niche flash sites and social traffic to continue to grow as important acquisition channels for online retailers this holiday season. When we look at last year's holiday season, visits to flash-sale site veterans such as Woot!, Ideeli and Gilt Groupe continued to grow. The category has also seen an influx of newcomers (e.g., One Kings Lane) appear on the scene. These newcomers establish the viability of flash sales dedicated to specific subcategories of products. In One Kings Lane's case, for example, home décor and furnishing.
While the "nicheing" of flash-sale sites will likely grow leading into the 2011 holiday season, the importance of social networking traffic, namely Facebook, will also continue to flourish. Traffic referrals from social networking sites increased 27 percent for the 2010 holiday season compared to the 2009 holiday season. Consumers often visited a retailer's website immediately after leaving that retailer's Facebook page. Retailers wisely leveraged this trend by using Facebook and other social media platforms to promote products and specials throughout the season. This trend is expected to be even more pronounced this year.
While the state of our economy will be one of the determining factors in how the fourth quarter will play out this year, that doesn't mean you don't plan for success. Consider the following three strategies:
- Track this year's online retail traffic compared to previous years, as well as changes in consumer sentiment.
- Understand the cost-savings motivations of your customers and the differences in their demographic to maximize revenue.
- Continue to invest in traditional traffic acquisition channels such as search and email, but also take a closer look at social media, group buying and niche flash-sale sites as additional traffic sources for this year's holiday season.
Bill Tancer is the general manager, global research at Hitwise. Reach Bill at bill.tancer@experian.com.
