What’s the Story?

We take a deep dive into US consumers’ holiday 2020 shopping expectations, with results from our exclusive consumer survey, conducted on September 14, 2020.

Why It Matters

The shape and scale of consumer demand during the holiday peak is less certain than ever. Our proprietary survey provides insights on how, when and where consumers expect to shop this holiday season—including the aspects they are undecided on given the unfamiliar context.

How Consumers Will Spend and How Much

Half of Respondents Expect To Spend Less Consumers are approaching the holiday season with caution and with reduced options for spending on services:

• Some 53% expect their total holiday spending to be less than last year, with almost 29% expecting to spend a lot less and just over 24% expecting to spend slightly less.
• Compared to our previous survey in mid-August, the biggest leap has been in those expecting to spend slightly less. The shifts have been in part due to shoppers having a clearer picture: Far fewer now “don’t know” how their spending will shape up.
• In total, just under 10% expect to spend more this holiday season than last, as of September 14.

We asked respondents to think about their holiday spending in total and not just retail purchases such as gifts. As we show later, spending on services such as food service, travel and days out looks set to take the greatest hit this year. [caption id="attachment_117219" align="aligncenter" width="700"] Base: US respondents aged 18+ (1,134 in September, 401 in August, 454 in July)
Source: Coresight Research [/caption]   Higher earners are likely to sustain any year-over-year increase in retail sales: Those with a household income of under $50,000 are almost twice as likely as those with an income of $100,000 or more to report that they expect to spend a lot less. However, it is not that higher earners have much greater expectations than those on lower incomes of spending morethan last year. Instead, shoppers in the higher income groups show a greater likelihood of spending around the same as last year or slightly less than last year, compared to those with lower household incomes. [caption id="attachment_117220" align="aligncenter" width="700"] Base: 1,134 US respondents aged 18+
Source: Coresight Research [/caption]   What Will Impact—and Drive—Shoppers’ Spending? In spite of somewhat pessimistic expectations among consumers, once we asked shoppers to reflect on factors that could impact their spending, our survey revealed some positive indicators for retail spending. We think these indicators suggest a meaningful upside potential for shoppers’ actual spending, versus shoppers’ current expectations for spending. Totaling those that agree a little and agree a lot:

• Seven in 10 consumers (68.9%) expect to switch spending from services to products, potentially providing a multibillion-dollar boost to retail.
• Six in 10 respondents plan to spend their budgeted amount one way or another. Although some consumers may begin by budgeting less than last year, the result further implies that funds saved from experiences could be directed into retail purchases. In turn, this implies outsized opportunities to drive impulse purchases, such as last-minute stocking stuffers, as consumers browse for alternative ways to spend their budgets.
• Just over half expect to trade up to better quality products this year. This trading up could be supported by the shift from spending on services.
• Almost half of those surveyed agree that they have more money to spend because they have saved money in recent months. We calculate that US consumers spent over $300 billion less on a range of discretionary goods and services across the first seven months of 2020 than they did in the corresponding period of 2019, based on Bureau of Economic Analysis data.

[caption id="attachment_117221" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   By household income:

• Unsurprisingly, lower-income households are more likely to be dependent on stimulus payments than higher-income households. Lower-income households are also less likely to say they have spare cash from recent saving.
• Lower-income households are very slightly more likely to spend all of their holiday budget, one way or another.
• Trading up to better quality products, is even across the $50,000–99,999 and $100,000+ income bands year over year.

[caption id="attachment_117222" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   By age, our survey found that expectations to switch spending from services to products (i.e., retail) peaked at 75% among the youngest adult age group, of 18–29, and declined by age thereafter, to a low of 60% among those aged over 60. The youngest shoppers tend to have less disposable income, but are more likely to spend on services—so the high degree of expected switching bodes well for retail. Where Retail Could See Gains The counterpart to fewer spending options in services is the extra cash available for product purchases. We asked respondents that said they would switch spending from services to products to specify the product categories that they are likely to spend that money on.

• Gift cards look set to see the biggest gains from those switching spending. Retail could also see gains in electronics, apparel, home goods and media products, according to our survey.
• The positions of the top two product categories—electronics and apparel—reflect their very strong positions as gifting categories, which we demonstrate later in the report.

[caption id="attachment_117340" align="aligncenter" width="700"] Base: 769 US respondents aged 18+ who expect to switch some spending from services to products for the holidays
Source: Coresight Research [/caption]   Potential Category Cutbacks and What Shoppers Expect To Buy as Gifts We asked those that expect to spend less this year than last year where they think they will make cutbacks. Services such as food services are set to be the worst hit. We also asked all holiday shoppers what they expect to buy as gifts, which is charted alongside for comparison in Figure 6 below.

• Among retail categories, our respondents said that decorations will be the most-cut category—a little surprising given it is a peripheral category, but reflective of less entertaining and hosting of events this year.
• We asked respondents to think about their overall spending—not just on gifts. So, cutbacks on clothing, for example, could partly reflect attendance at fewer social events or less dining out and reduced spending on food may be due in part to shoppers hosting fewer events for friends or family.
• Among product categories, clothing is in the top spot: Electronics and apparel swap positions in expected gifting versus expected cutbacks—but the differences are negligible. We expect apparel categories to perform better, in year-over-year terms, during the holiday peak than in prior months: Recent spending has been depressed by reduced demand for clothing for work or social events, but such immediate needs are less important as drivers of gifting spend.
• The data show the likely resilience of gift cards this year: The category ranks high as a gift option and disproportionately low for cutbacks. We see gift cards as a strong category on the back of social distancing—they are easy to buy remotely and gift remotely, whether electronically or in hard copy—and they are one solution to potential inventory or supply chain challenges this year.

[caption id="attachment_117224" align="aligncenter" width="700"] Base: 603 US respondents aged 18+ who expect to spend less on the holiday season in 2020 than in 2019 (left); and 1,116 US respondents aged 18+ who spend on the holidays (right)
Source: Coresight Research [/caption]  

When and Where Consumers Will Shop

Shoppers Expect To Consolidate Their Trips and Start Shopping Early Over one-third of all holiday shoppers expect to consolidate their visits to brick-and-mortar stores, providing tailwinds for multicategory, multibrand retailers such as mass merchandisers, warehouse clubs and—potentially—hard-hit department stores. The latter must capitalize on this consolidation trend by pulling out all the stops to position themselves as one-stop shops for gift purchases. They, and others, must also provide reassurance to the 26% that will opt for retailers with strict safety protocols. At around one-third of respondents, expectations to switch some or all spending to e-commerce is a little lower than we might expect—and this could reflect the indecision among consumers about in-store shopping, which we note later in this report. Expectations to use curbside pickup and in-store pickup are roughly neck and neck. [caption id="attachment_117225" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   Amazon has confirmed that Prime Day will run October 13–14 this year, helping to kick-start an early holiday season. Almost four in 10 holiday shoppers expect to buy during the event, well ahead of the more traditional Black Friday (21%) and Cyber Monday (33%) events. Only Prime members can get Amazon’s Prime Day deals. In March, we recorded 54.3% of survey respondents personally having an Amazon Prime membership and a further 27.3% having access to Prime benefits through someone else in their household (while not having a Prime membership themselves). Three in 10 holiday shoppers told us that they expect to start holiday shopping earlier than usual this year, versus 10.5% expecting to start later. That 20-percentage-point difference is good news to retailers and fulfillment companies—pulling forward holiday shopping should help to ease the pressures on the e-commerce supply chain. We explore why these consumers plan to start shopping earlier in the next section. [caption id="attachment_117226" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   By age group:

• Younger shoppers are more enthusiastic for shopping holidays such as Prime Day and Cyber Monday.
• Older consumers are more likely than younger consumers to shift some spending to e-commerce—possibly because, in total, they had migrated less spending online before the crisis.
• Curbside and in-store pickup appeal roughly consistently across age groups, with the exception of those aged over 60.

[caption id="attachment_117227" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   Why Some Consumers Expect To Start Shopping Earlier We asked those that plan to start shopping earlier why they expect to do so. Avoiding crowds was the top reason, but almost half are concerned about online orders being delivered in time and slightly more than one-third are concerned about the availability of products—suggesting that some consumers are attuned to potential supply-chain challenges. [caption id="attachment_117228" align="aligncenter" width="700"] Base: 339 US respondents aged 18+ who expect to start holiday shopping earlier than last year
Source: Coresight Research [/caption]   Only Half Expect To Buy In-Store—Although One-Quarter Are Undecided This year is likely to see a jump in online spending—Coresight Research estimates a year-over-year rise of around 31% in online retail sales in the final quarter. This will be driven by online shoppers spending more of their budget online, rather than a big uptick in the number of online shoppers. That’s because shopping online for the holidays had already reached very high levels—possibly near-peak levels—even before the Covid-19 crisis. As shown below, the year-over-year increase in expectations to buy gifts online is therefore quite modest—from 81% in 2019 to 85% in 2020. The big difference has been in expectations to buy gifts in stores. This dropped 29 percentage points compared to last year—not just because many consumers are opting out of brick-and-mortar shopping, but also because around one-quarter don’t yet know if they will buy in store this year. Many consumers are wary and uncertain given the current background to their shopping. [caption id="attachment_117229" align="aligncenter" width="700"] Base: US respondents aged 18+ who spend on the holidays (1,116 in 2020 and 1,784 in 2019)
Source: Coresight Research [/caption]   Which Retailers Consumers Will Buy From and Why So far this year, multichannel retailers have tended to outperform online-only retailers in terms of e-commerce expansion. We expect very strong online demand to be seen across the multichannel space into the holiday peak. Nevertheless, our survey suggests that Amazon will be the top retailer for gift purchases, with a strong lead over Walmart and Target. Last year, we recorded Amazon and Walmart as roughly neck and neck by shopper numbers. One advantage for Amazon this holiday season is the demand for free shipping (see the next section), which Amazon.com has a strong reputation for providing, whether for Prime members or on selected non-Prime orders. In store, the preference for consolidating shopping trips should support multibrand, multicategory retailers—which includes many of the most popular names charted below. In fact, Best Buy (electronics) is the only category specialist in the top 10, although T.J. Maxx/Marshalls has a strong skew toward apparel. [caption id="attachment_117230" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   Traditional factors such as low prices, product quality, special offers and availability remain the dominant factors when choosing where to shop—these top four options shown below echo the ranking we recorded in our holiday survey last year.

• Clean or Covid-safe stores are a factor in decision making for more than one-third of shoppers.
• Free delivery jumped from seventh-most-important factor last year to fifth this year, reflecting the increased role of e-commerce.
• Free delivery is much more important to shoppers than rapid delivery, which in turn is more important than in-store pickup services and curbside pickup services.
• The ranking for in-store and curbside pickup approximately reflect the expectations, shown earlier, of one in five respondents to use these services.

[caption id="attachment_117231" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]   In-store pickup is most important to family-lifestage shoppers, aged 30–44, although we do not see a similar peak for curbside pickup. Demand for safe stores increases steadily with age. [caption id="attachment_117232" align="aligncenter" width="700"] Base: 1,116 US respondents aged 18+ who spend on the holidays
Source: Coresight Research [/caption]  

What We Think

Implications for Retailers Better Than Anticipated? While consumer spending expectations look pessimistic, services spending looks set to take the greatest hit and our data reveal potentially meaningful supports for retail sales—seven in 10 respondents reported that they expect to switch some spending from services to products and, with reduced spending options, around half expect to trade up to better-quality product this year. We therefore think that final spending could be stronger than shoppers’ current expectations imply, although—as ever—the increases will not be evenly distributed.

• Perhaps not surprisingly, higher earners look less likely to cut their spending: Those with a household income of $100,000 or more are around half as likely to say that they will spend a lot less this year as those with an income of under $50,000. Higher-income households are also more likely to say they have extra cash from saving in the recent past, such as during lockdown. Where appropriate, retailers should cultivate demand among more affluent shoppers, including with impulse purchases in lieu of services spending.
• Expectations to switch spending from services to products peaked at 75% among the youngest adult age group, of 18–29, and declined by age thereafter. Retailers should seek to capture this additional spending among younger shoppers, targeting some of their unspent services dollars.

Category Insights Gift cards look set to be a winning category this year, helped by their suitability for purchasing and gifting or sending in socially distanced ways. Retailers—especially those faced with potential inventory or fulfillment challenges—must seek to convert shoppers to gift cards. With more limited options for spending this year, retailers can encourage purchases of vouchers and cards as incremental gifts and so build basket sizes.

• Gift cards are marginally the second-most-popular gift that shoppers expect to buy.
• They are the top product category that consumers transferring spending from services to goods expect to switch spending to.
• The category ranks low compared to other categories for expected cutbacks, among shoppers that expect to reduce their holiday spending.

We have seen mixed signals on the hard-hit apparel category, but the overall picture looks to be one of relative resilience:

• Clothing and footwear comprise the top category that shoppers expect to buy as gifts.
• The apparel category  ranks a solid third among those expecting to switch some spending from services to products.
• However, apparel is also in third place among product categories for cutbacks by those expecting to spend less this year.

We expect the year-over-year declines in apparel sales to ease during the holiday peak. The declines so far this year have been fueled by consumers having little need for clothing for workplaces or social events, but holiday gift purchases are less likely to be driven by these immediate or direct needs of the wearer. How They Will Shop Just over one-third of all holiday shoppers expect to shop from fewer stores to reduce their trips, and this is likely to prove advantageous for multicategory, multibrand retailers such as mass merchandisers and warehouse clubs. This could also potentially provide a tailwind to some department stores—these retailers must lose no opportunity in positioning themselves as one-stop shops for gift purchases. With just over one-quarter of respondents citing safe or Covid-secure stores as a factor in where they shop, department stores and others must provide reassurance over safety; and, unlike some other formats, department stores have the advantage of space that allows for social distancing. A sizable one-quarter of consumers are not yet sure whether they will shop in stores, underscoring the need for reassurance. Curbside pickup adoption has increased amid the pandemic. Our survey suggests that it continues to occupy a niche, albeit a reasonably substantial one—with one in five respondents saying that they expect to use in-store pickup and curbside pickup, and a roughly similar proportion rating these services as important when choosing where to shop. Free delivery is much more important to shoppers than rapid delivery, which in turn is more important than in-store pickup services and curbside pickup services. This year, free delivery jumped to the fifth-most important factor when consumers are deciding where to shop, from seventh position in 2019. This reflects the increased role for e-commerce and plays to Amazon’s advantage, given over half of consumers tell us they personally have an Amazon Prime membership. But Amazon is not the only retailer to offer free shipping, and rivals must communicate their offerings strongly. We expect holiday-quarter online sales to rise by around 31% year over year. This will be driven by consumers switching a greater share of their spending online, rather than any major jump in online shopper numbers: The proportion expecting to buy gifts online increased relatively modestly from 81% last year to 85% this year. There is much to play for. We estimate that US consumers cut their spending on discretionary goods and services by over $300 billion in the first seven months of 2020. If we assume that the precrisis upward trend in spending would have otherwise continued between 2019 and 2020, the final difference between what would have been spent and what was spent by consumers is closer to $400 billion. A great deal of services spending will remain unspent into the holiday peak, so that figure will rise even further. For comparison, fourth-quarter 2019 retail sales totaled just over $1 trillion. There will be a very substantial pool of discretionary cash available for retailers to compete for this holiday season—if they can encourage wary shoppers to open their wallets.

Methodology

We surveyed 1,134 US-based respondents online on September 14, 2020, of which 1,116 spend on the holiday season. The results have a margin of error of +/- 3%, with a 95% confidence interval.