Smiling woman looking into a retailer's window with holiday lights displayed.
Retailers are facing tough headwinds in the 2022 holiday season, including persistent inflation, cost-conscious consumers, excess inventory, and price wars with their competitors. — Getty Images/David Levingstone

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Why it matters:

  • With consumers worried about inflation and economic uncertainty, retailers and brands are looking for creative ways to show that they offer good value, without deep discounting.
  • Retailers have invested in tech to help personalize their marketing messages and to strategically time inventory markdowns.
  • As more consumers expect to return to stores this holiday season, getting and keeping staff has become critical, and retailers have responded with wage hikes and enhanced benefits.

U.S. retailers have been worrying about, and working to prepare for, the upcoming holiday season since the beginning of this year.

They realized early on that they face tough headwinds in holiday 2022, including persistent inflation, cost-conscious consumers, excess inventory, and price wars with their competitors.

While holiday retail sales are expected to increase between 4% and 6% this year, according to Deloitte’s holiday forecast, a good portion of that increase will reflect the higher cost of goods.

Here are the top-five hurdles retailers must overcome this holiday season, and what they are doing to prepare for them:

The problem: Cautious consumers

Inflation and economic uncertainty are going to impact the holiday budgets of more than two-thirds of shoppers this year, and “lead to a more value-oriented and budget-conscious consumer,” Steven Winnick, Senior Analyst, Coresight Research, said at a CommerceNext holiday webinar in September.

More than a third of U.S. consumers plan to spend less this holiday season than they did last year, and 82% said price is a key factor in their decision to buy, according to a recent survey by marketing platform Optimove.

The plan: Targeted messaging

The good news for retailers is that although consumers are concerned about the economy, employment and personal savings remain high, and consumers are willing to spend if targeted with the right messages.

In turn, retailers and brands are planning to capture holiday dollars with messages that emphasize their value proposition, their assortment of gifts at all price points, and with marketing targeted to specific customers. They also will be urging consumers to shop early to avoid price increases.

Walmart will be leaning into its low-cost image by emphasizing deals like all the ingredients for Thanksgiving dinner for four for under $50.

Macy’s has been investing in tech that lets it tailor marketing messages “to individual customers by looking at their buying patterns” and sending targeted emails or texts, Macy’s chief financial officer Adrian Mitchell said at the Goldman Sachs Retailing Conference.

Target is encouraging early shopping with its earliest-ever holiday promotions, starting in the first week of October. The discounter is expanding its price-match period from October 6 to December 24, and promising that if a price drops on at item later in the season, it will match the reduced price.

[Read: 5 Post-COVID Economy Tech Trends Driving Sales]

The problem: Bloated inventories

After the supply chain challenges of 2020 and 2021, retailers are finding themselves in 2022 with too much inventory on hand as they prepare for the holiday months.

“It’s a bit of a stark contrast to what we saw over the 2021 holiday shopping season, where product shortages and supply chain bottlenecks were some of the concerns that were top of mind,” Winnick said.

The plan: Taking price markdown hits early

Retailers, for the most part, cut prices mid-year to get rid of excess inventory and make room for holiday merchandise.

“Starting in March, we knew we needed to act quickly and aggressively on some categories” to get rid of excess goods, Walmart CEO Doug McMillon said during its second quarter earnings call with investors. The deep discounts on overstocks “put financial pressure on us, but it helped relieve pressure on our stores and through our supply chain,” he said.

Macy’s has begun implementing marketing optimization technology that allows it to make choices about the timing and depth of price markdowns by individual styles, by specific store locations, or by channel – e-commerce versus in-store.

[Read: Big Brands’ Inventory Management Partners Share Top Tips to Slay Supply Chain Snarls]

In turn, retailers and brands are planning to capture holiday dollars with messages that emphasize their value proposition, their assortment of gifts at all price points, and with marketing targeted to specific customers. They also will be urging consumers to shop early to avoid price increases.

The problem: The discounting wars are back

Retailers got a break from the traditional holiday discounting wars in 2020 and 2021, because high demand and merchandise shortages meant they didn’t have to offer price cuts to lure shoppers.

This year, however, is expected to feel a lot more like the pre-pandemic years, with retailers planning to once again rely on discounts and promotional days like Black Friday and Cyber Monday to drive sales.

A survey of retailers attending the CommerceNext holiday webinar found that more than half of those polled expect they will be more, or much more, promotional this year.

“We’ve been cautioning our customers not to get too promotion crazy” and risk killing their profit margins, Rob Garf, Vice President and General Manager of retail at Salesforce, said at a Salesforce holiday forecast presentation attended by CO—.

The plan: Deals that don’t involve discounts

Retailers are hoping to use other ways to entice customers to buy, such as loyalty program rewards or gifts with purchase offers.

Luxury and specialty retailers who don’t want to hurt their brand with price-slashing, Black Friday style promotions are looking at other ways to make a shopper feel they are getting value for their dollar.

Jewelry retailer David Yurman is seeking to do that with in-store services that add value to the brand.

“It can be a special activation that speaks to the holiday — an illustrator coming in and customizing the packaging — so that the gift feels more elevated and special,” Rachel Goldflam, Vice President of Marketing and Communication at David Yurman, said at the CommerceNext webinar.

“It adds an extra touch and enhances the value of the gift without being promotional.”

Fashion brand Michael Kors this year is highlighting its range of gifting options at all price levels in order to reach budget-conscious shoppers, said Ann Marie Ippoliti, Vice of President, Digital Commerce for the brand, at the CommerceNext event. The company plans to focus on showing customers that it has “great value items at different price points, without having to emphasize the promotional aspect of it,” she said.

The problem: Delivery demands

This year, some consumers are expected to return to their pre-pandemic habit of last-minute shopping and waiting to see if prices drop before they buy. That will make it even more important for retailers to be able to reassure those shoppers that they will get the goods in time for the holiday, even if they wait until December 24.

The plan: Leveraging in-store fulfillment gains for online orders

The pandemic, and the resulting supply chain problems, forced retailers to get a lot better at in-store and curbside pickup. All of the major retailers will be leaning into those new skills to keep customers buying and happy.

Target is promising to have store pickup and curbside orders ready in as little as two hours and is offering delivery by Shipt in as little as one hour.

Walmart reported in August that orders fulfilled by its stores are up nearly 40% this year. It is also offering speedy delivery to small retailers with its Walmart GoLocal business, which has made over one million deliveries for other retailers in the year since it launched.

The problem: Staffing shortages

Consumers are expected to return to stores in large numbers this holiday season, and they will be expecting an experience that is as easy as online shopping.

The plan: Happier workers mean happier customers

The big retailers have been boosting pay and benefits this year, and hiring in advance of the holiday season.

Best Buy has raised its hourly wage by more than 20% and added benefits including caregiver leave and paid time off for part-time workers.

Target this year raised its minimum wage range from $15 to $24, and is offering its workers, including seasonal hires, flexible scheduling and access to benefits.

Walmart also is offering flexible scheduling for seasonal workers and promoting holiday jobs as a path to full-time employment.

“In fact, 75% of our U.S. salaried management team in stores, clubs and supply chain began their careers as hourly associates, including our CEO Doug McMillon,” Maren Waggoner, Senior Vice President of Field People, Walmart U.S., said in a September blog post.

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