Consumer behavior has never been more diverse, volatile and difficult to predict this holiday season. However, as consumers navigate an evolving landscape of mask and vaccine mandates, localized outbreaks and school re-openings, some trends have begun to emerge.
Some at-home trends have begun to reverse
Sales growth for athletic apparel and footwear has lagged overall apparel spending as consumers are increasingly leaving their joggers and hoodies in the closet in favor of slacks and button downs. We expect this trend to continue through the end of the year as the return to work, restaurants and schools are top of mind for consumers.
Likewise, we expect color cosmetics and fragrances to continue a strong comeback as consumers replenish dated inventories. And, while demand for home furnishings remains strong, recent sentiment data from the University of Michigan suggests consumers may be putting off larger purchases due to product availability and pricing. We anticipate consumers to close the year making smaller, decorative home furnishing purchases on the prospect of bringing more people into their homes and entertaining.
Other pandemic trends will persist
Consumer electronics spending will likely remain strong; however, we expect mobility to continue to be a theme in this category as well. Consumers will favor communication, media and gaming devices that accommodate a more mobile lifestyle. Beauty categories that benefited from the shift in lifestyle during the pandemic, like skincare, will continue their strength during the holidays as these products are closely tied to personal care and wellness habits that consumers will favor.
Indulgent specialty foods saw strong holiday sales in 2020 buoyed by consumers’ preferences to gift these items to distant and absent friends and family. Despite the rebound in restaurant spending this year, specialty foods should see another strong holiday season with travel still lagging pre-pandemic levels and the fact that it makes a viable alternative to items that may be suffering from supply chain issues.
Supply chain turmoil will have an impact
What consumers will buy this holiday season will be impacted by more than just their plans for how they will return to work and life as we emerge from the delta variant resurgence. Consumer companies have struggled to keep inventory levels sufficient to meet demand as a result of factory delays in Asia, a backup at the ports in the U.S. and a shortage of truck drivers to deliver inventory to warehouses and stores across the country. This will undoubtedly impact both consumers and consumer companies.
In our last post, we discussed the trend toward an earlier start to the holiday shopping season. One of the contributing factors to the earlier start might just be that consumers have a fear of missing out. We expect consumers will respond to headlines and start their shopping earlier this year. And if consumers can’t find what they are looking for, spending this season may shift toward gift cards, dining and other experiential spending.
For consumer companies that aren’t able to attract gift card sales, or don’t provide consumer experiences, the downside could be worse than the short-term lost sales. Most notably, retailers that order trendy or seasonal items for the holiday season and don’t receive those items soon enough to meet the early demand of consumers could be stuck with a difficult decision: sell the inventory at a deep discount after the holiday season or incur the cost to store the items until next year. Both options hurt cash flow and loan availability.
The takeaway
Amid volatile consumer preferences and supply chain turmoil, U.S. households head into the holiday season with strong income and robust balance sheets. Those agile consumer products companies that can adapt to consumer preferences and navigate supply chain challenges are poised to reap the rewards.
While the window is closing to bring in inventory to align with trends, a sound data strategy will allow consumer products companies to keep a pulse on the consumer environment, optimize pricing on their most sought-after items, ensure the right products are available in the right channels and geographies, and minimize post-holiday returns.
Look for additional insights next week as we continue our five-part Consumer Products Holiday Season Countdown series.
