No matter where you are in the retail supply chain, the run-up to the holiday shopping season can be a little scary. And not just because Halloween is right around the corner.
There are so many questions. Are we ready to handle the wave of shoppers? Will there even be a wave of shoppers? Can we react quickly if market conditions change?
Sometimes it would be nice to have a crystal ball.
But the challenges procurement and supply chain professionals face are serious. The decisions you make in navigating these challenges will directly affect your business. Of course, timely and accurate decision-making requires insight that is not magic, like a crystal ball. It requires access to data, visibility into supply chains, and collaboration between trading partners.
Fortunately, by digitalizing procurement processes and engaging with trading partners via business networks, it is possible to gain the visibility and business insights required to plan for events like the holiday shopping season and be ready when disruptions occur.
Of course, there is also the old school way to gain market insight: ask consumers. As the holiday shopping season approaches, we have done just that. We wanted to know how inflation is affecting consumer purchasing habits, what consumers are expecting in terms of a recession, and how their spending habits could change in the coming year. So we asked 1,000 U.S.-based consumers across a wide range of age groups. Here is what we found.
Inflation Is Forcing Many to Adjust Their Holiday Buying Habits
The U.S. Bureau of Labor Statistics recently announced prices rose 8.3% in the year through August. Inflation continues to dog our economy and, as a result, 65% of the consumers in our survey said they plan to cut their holiday budgets. Gen Z (69%) and Millennials (76%) were especially emphatic about spending less.
Here are some other insights.
- Price is key. Consumers also say they will be looking closely at the price of goods. In fact, 45% say it is the top factor they will weigh in purchasing decisions. A whopping 73% included price in their top three factors.
- How they will shop. In an interesting development, 54% of consumers surveyed reported they will change where they shop — of those, 39% say inflation is causing them to shop more online; surprisingly only 15% said they will seek bargains in the stores.
- Where they will cut back. A majority of consumers plan to cut their holiday budget — but where? It turns out that that 61% will be dining out less, and 51% will be spending less on experiences and travel. Many consumers said they also expect to reduce spending on fashion and beauty (46%) and electronics (37%).
- Many consumers face difficult choices. Holiday buying aside, the survey reminds us that many households are forced to make tough spending decisions. Although 16% of the consumers surveyed told us they are not reducing spending amid inflation, it is telling that 22% are being forced to cut spending on essential items.
Consumers Expect a Recession, Further Curbing Their Willingness to Spend
Looking beyond the holidays and into next year, consumers do not seem optimistic. Three quarters of those surveyed said they believe a recession is coming within the next year. And if that happens, 59% expect to decrease their spending.
One way they will do this is by shopping deals rather than staying loyal to brands. Twenty-eight percent said they plan to switch brands if prices increase. Overall, only 19% say they will stay loyal to the brands they prefer. Brand loyalty for Baby Boomers is almost non-existent: only 10% say they plan to stay loyal to the brands they normally prefer.
Concern about Shortages Is Only Increasing
A similar consumer survey conducted by SAP in February 2021 — with the pandemic entering its second year — showed that concerns about supply chain disruptions and product shortages were weighing on consumers.
However, our most recent survey indicates that consumers are now even more apprehensive than they were 18 months ago. Food leads the list with 77% of respondents saying they were concerned about shortages in the coming year. Gen X and Baby Boomers were especially concerned, at 83% and 85% respectively. By comparison, in February 2021 only 48% noted food shortages as a concern.
Our most recent survey also highlighted increasing concern over shortages of hygienic or personal care products such as toilet paper (49%, up from 44% in 2021) and prescriptions (36%, up from 20% in 2021).
Is Digitalization the New Crystal Ball?
This holiday shopping season, if procurement and supply chain leaders had that crystal ball that could help them navigate the uncertainty, they would gladly use it. Unfortunately, we have not perfected that technology. But there is good news for retailers, manufacturers, distributors, and most other industries. SAP offers technology solutions that provide unmatched visibility, efficiency, and flexibility to deal with rapidly changing business requirements — including those occurring during the holidays.
As requirements for products and materials change, intelligent spend management solutions from SAP make it possible to digitalize procurement processes, putting transaction data in one place so you can act efficiently, accurately, and quickly. Likewise, by sharing data with suppliers within SAP Business Network, you can collaborate on forecasts and gain foresight into what is happening within your supply chain.
In fact, when I compare SAP’s powerful spend management and business network solutions to a crystal ball, I come to one conclusion: crystal balls are overrated.
Etosha Thurman is chief marketing and solutions officer for Intelligent Spend and Business Network at SAP.