Blog Post - Hugh Fletcher, Oct 14 2020

Peak Fitness: can retailers end 2020 on a high?

Peak Fitness: can retailers end 2020 on a high?

2020 has been a year like no other. And after the massive disruption caused to business and commerce by the COVID-19 pandemic, the retail calendar is set to end with a peak shopping season like no other.

It might only be mid-October, but this year’s peak has already started. Thanks to Amazon’s decision to push back Prime Day from July to October, we’re now at the start of a 10-week marathon of back-to-back retail events that will also include Black Friday, Cyber Monday and the Christmas shopping season – a “Mega Peak” as we termed it in our latest report.

Nevermind the fact that there is a six week gap from Prime Day (13-14 October) to Black Friday (27 November). The evidence already suggests that retailers are planning on starting their Black Friday promotions earlier than ever. After the sharp financial hits most retail categories have taken so far this year, everyone wants to grasp onto the idea that a bumper sales period could go some way to repairing the damage.

But the prime mover in this year’s extended mega peak is Amazon. After all, Prime Day is an Amazon-exclusive event designed to further encourage people to join the Prime club. By moving it so close to Black Friday - which the Seattle giant has also come to dominate, taking just under two thirds of online consumer spend in the UK last year - has Amazon simply created yet another way to consolidate its already considerable grip on the retail market?

The challenge facing all other retailers is that, in light of the struggles they have faced this year, they really cannot afford to miss out on any kind of hike in consumer activity from now until the end of the year. It certainly won’t be a stroll, but what can businesses do to get themselves race-fit for the mega challenge in front of them?

An uphill struggle?

The issues facing retailers when it comes to making the most of Peak Season 2020 can be summarised in two points. One is the fact that consumer confidence has been hit hard by the economic fallout of the pandemic, with spending power significantly reduced by redundancies, workers being placed on furlough and the general uncertainty that surrounds recession.

The other is the way that lockdown has accelerated the trend towards shoppers buying online, with many people still reluctant to return to the high street. (Our recent survey found 1 in 4 consumers are still scared to return to the shops, albeit that’s down from 48% in July). And the switch to digital has only served to further strengthen Amazon’s hand.

All the evidence suggests that revenues will be down this peak season, even though it has been extended like none before it. When we surveyed shoppers to gauge their thoughts and spending plans, 38% told us they expect to spend less this Black Friday compared to last year. This contrasts to 24% who had planned to spend more when we carried out a similar survey ahead of the pandemic in January.

In addition, 20% of respondents said they expected to spend less because of the shadow of uncertainty still being cast by Brexit, which is only marginally down on the 25% who said the same last year.

When you add in the fact that the UK is starting to see tightening restrictions as the ‘second wave’ of COVID-19 hits, coupled with additional financial uncertainty over the end of the furlough scheme, don’t be too surprised if consumer spend this Black Friday and Christmas period takes a noticeable dip down from last year.

Online and Upward

But by the same token, it is extremely likely that online spend will be significantly higher. Consumer behaviour around digital shopping has changed because of the pandemic. Over the summer, even when shops opened again, 43% of UK consumers said they felt more positive about shopping online than before the pandemic.

That translates into 67% of forecast spend over the Black Friday period coming online, with – as mentioned - a quarter (24%) of shoppers saying they will keep away from stores altogether.

And that is where Amazon holds all the aces. A quarter of consumers told us that their spending with Amazon would increase this Black Friday period because of the way the company has performed over lockdown. All in all, we forecast that Amazon is in line to command 65% of digital spend this Black Friday.

One of the biggest challenges other retailers face is the fact that, with Prime Day moved so close to the usual annual peak season, Amazon in effect gets first hit at what spare cash consumers are prepared to part with this year.

Prime Day also serves a broader strategic purpose - cementing loyalty in the Prime brand, and even extending its reach. A third (35%) of Prime customers we spoke to said Prime Day was a factor in them renewing their subscriptions, while 20% of non-Prime members said it would make them consider signing up. More Prime members come Black Friday should mean Amazon taking an even greater share of spend.

Scaling the heights

So is that it - do retailers just cede the extended peak to Amazon, and with it write off all prospects of salvaging something from 2020?

That’s not a position businesses can afford to take. Nearly half (43%) of all retail revenue from now until the end of the year is expected to come from peak-related promotions and special events, so companies simply have to find a way to grab a share.

And while consumer confidence might understandably be at a low ebb, with Christmas coming, people still have a big incentive to spend - 60% of consumers we spoke to said they would buy presents during sales events this year. And while the pandemic has undoubtedly hit households hard in the pocket, in some respects it has resulted in less spend on things like holidays and general socialising, so some people will have funds saved up for a pre-Christmas blow out.

Retailers

So how do retailers make the most of what opportunities are available? Given some of the statistics we have already shared, it is clearly vital that businesses get their digital houses in order. With two thirds of Black Friday spend expected to come online and concern over the risks of in-store shopping still very real for many people, retailers simply have to treat their digital channels with at least the same strategic importance they place on their physical outlets.

For many businesses, lockdown offered some important lessons in scaling up online operations at speed and competing in a digital-first environment. This peak season is an opportunity to put that learning to the test.

But what about Amazon? Doesn’t focusing more energy and investment on digital just play into the marketplace giant’s hands, because it means trying to compete on their terms in their area of strength? Amazon’s digital dominance cannot be ignored, but we always say there are three options for any retailer looking to succeed alongside it, if not in direct competition - work with Amazon, learn from Amazon or focus on what Amazon can’t do. A combination of all three is ideal.

On the first point, there are plenty of ways retailers can leverage Amazon’s size and brand strength, whether it is becoming a marketplace seller or a wholesale supplier. Another is Amazon’s shipping and fulfilment operations. If you have until this year been primarily a store-based operation, scaling up your online deliveries to meet peak demand at short notice might be difficult. Amazon’s shipping services offer a ready-made solution, letting you take advantage of its near unparalleled reputation for speed and reliability.

In terms of learning from Amazon, it is noticeable how digital products are on the rise, an area which Amazon has made into a real core strength with everything from Prime Video to ebooks and audiobooks to music downloads. According to feedback we got from our consumer survey, as much as 17% of purchases this peak season could be of digital or instantly downloadable products. Perhaps leading your promotions with these types of offers could be a way to grab attention by tapping into a hot consumer trend.

And finally, focusing on what Amazon can’t do… well the first thing to say is that the onus is on businesses to get creative with what they offer. The run up to Christmas might traditionally have been all about discounting, but that is a very difficult area to compete with Amazon on.

What smaller retailers in particular have that Amazon does not is a much closer rapport with customers, so finding ways to leveraging that into more sales could prove critical. Delve into your data, make sure you understand your customers as fully as possible during these difficult times, and tailor your promotions, your messaging, your service and your fulfilment as closely to their needs as possible.

And to bring it all full circle - don’t completely write off your store. Yes, this peak season looks set to be defined by a series of digital-first events. But one thing Amazon does not have is a notable presence on the high street. Treat every channel as an equally valuable asset, and think innovatively about how you can tie them all together to offer your customers a pleasing, convenient and unique experience.

Download the latest insights from our survey

In September we surveyed over 2,500 consumers across UK on their plans for shopping during Prime Day, Black Friday and into Christmas, assessing the impacts of Covid-19 amongst a variety of other factors.

Download the report