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What will retail and e-commerce spending look like this holiday season?

What will retail and e-commerce spending look like this holiday season? Blog Feature

Kristen Harold

Director of Marketing, 10+ Years of Digital Marketing & Lead Generation Experience

December 5th, 2020 min read

Here’s a conversation that has occurred in my home, more times than I’d care to admit since March. 

My husband: “We just got a few packages. Did you order something from Amazon?”

Me: “Uhh...I probably did, yeah.”

I admit I was a big online shopper pre-pandemic. One of my favorite lazy night activities is scrolling through my Hautelook app and finding more items to pack my closet with. A cute pair of leather boots for 60% off, yes, please!

But, in today’s quarantined, work-from-home world (thanks, COVID-19) even MY online shopping habits have increased.

It started out innocently enough. It was simply safer to order the standards online vs. going out to the store. Then, I started working from home full-time and needed a real workspace. So, I ordered a desk and a new office chair. 

As it got nicer out, my husband and I were spending a lot of time on the balcony. Naturally, that meant I had to make that space cozier with an outdoor rug and new plants. 

You can see how this is a slippery slope! The thing is, I’m not alone. The pandemic has not only changed how we all live, it’s changed how we shop. 

Now, as we head into the busiest shopping season of the year, retailers have had to make some big changes to their holiday marketing strategies. One of the biggest pivots they’ve had to make is how to spend their ad dollars. 

Black Friday and Cyber Monday also changed

Home Depot was one of the first retailers to announce their holiday season strategies. The DIY brand made the call to forgo the usual Black Friday in-store rush, and instead extend the typical post-Thanksgiving holiday season through the fall.

According to Forbes, more brands are following suit and taking a longer-term approach to holiday discounts and deals through e-commerce, as shoppers continue to practice social distancing.

So, what does this mean for holiday advertising? 

As you can imagine, retailers are pulling back on advertising for their brick-and-mortar locations, and instead, they are putting smaller budgets into driving more e-commerce sales. 

Pre-pandemic holiday advertising was a lucrative business

It won’t come as a shock that the holiday season typically brings big business to the ad industry.

In fact, retail is the single largest industry when it comes to ad spend overall.

Just take a look at these 2019 numbers from Forbes:

  • In 2019, there were five retailers that invested over $1 billion in advertising, all ranking in the top fifty in total ad dollars: Walmart ($2.75 billion), Target ($1.65 billion), Macy’s ($1.33 billion), Kohl’s ($1.16 billion) and Home Depot ($1.09 billion). 
  • The same year, Wayfair ranked #50 in spending at $932 million, a 40% increase from 2018. 
  • Amazon ranked first overall, with an ad spend total of $6.88 billion.

How much of these billions of dollars are spent during the holiday season? According to media analyst Jon Swallen, “30% to 35% of retail advertising budgets are allocated in the fourth quarter with smaller retailers allocating more.”

To give you an idea of how much that is, 30% of $1 billion is $300 million.

Holiday shopping will look different this year... and so will advertising

There’s no doubt that in-store shopping will take a hit this holiday season, as COVID-19 continues to surge across the country. However, it’s expected that e-commerce will help make up some of the difference for retailers.

This means that it’s likely retail ad spend for the year overall may only decline by about 6%. Going from about $27.9 billion in 2019 to $24.2 billion in 2020.

Other than spend, the other big change we will see in holiday advertising this year is messaging.

Advertisers have to be extremely sensitive to the state of the world. The holidays won’t be filled with family gatherings, office parties, or the typical activities we all know and love. As a result, retailers need to be careful to not come off as tone-deaf.

We’re already seeing a trend of holiday ads with less of a “hard sell” tone and more of a focus on meaning and authenticity in an effort to better connect to consumers in what is hardly a “normal” season.

What does this mean for small businesses?

Remember, the big retailers haven’t abandoned their stake in the ad game. 

However, with many pulling back at least a small part of their holiday ad budgets, it could give you a slight edge in terms of cost-per-click and ability to your ads in front of more eyes.

Don’t forget that while e-commerce sales will help keep the holiday shopping season afloat, the fact is the economy won’t be a big help.

With many businesses closing, and unemployment rising consumer spend this holiday season likely won’t see much growth. 

“According to the National Retail Foundation (NRF), in 2019, consumers spent $730.2 billion during the holiday season, a 4.1% increase from 2018.”

So, if you’re a smaller retail business, it’s important to be realistic about your expected ROI when determining your ad budget. 

It’s still the holidays!

If we’ve learned anything this year, it’s that we can all adapt to this ever-changing environment.

While I used to love grabbing a peppermint mocha at Starbucks and walking through magically decorated department stores in search of the perfect gifts for my friends and family, I will find new ways to enjoy holiday shopping this year.

Just imagine the Instagram story I can create with a peppermint mocha in my twinkle light-filled living room while I shop online! (Remind me to send that user-generated content idea to Starbucks!)

In all seriousness, the ad industry may not spend as much or see the growth they usually would, but brands can still make a massive impact this holiday season. 

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