Retail Ecommerce Highlights for Back to School 2022
Cyber5 is Approaching. Is Your Strategy a Winning One?
Before diving into what the future holds, it’s important to look back at the not-too-distant past. In 2020, holiday spending was heavily impacted by the movement of Prime Day to October. Sales were 3x on Prime Day, and this appeared to pull holiday spending forward as well. Cyber5 discount activity was moderate and sales lift was only 1.5x, despite heavy ad spending and low OOS levels. Just before Cyber5, though, there was a huge spike in OOS. But because traffic levels followed traditional patterns, it’s unlikely the OOS increase had much impact on sales. After Cyber5, holiday sales followed normal patterns.
This year, Amazon Prime Day ran far before the holiday season on June 21 and 22. As a result, holiday shopping will not be impacted this year as it was in 2020. Instead, we anticipate that Cyber5 2021 will perform similarly to 2018 and 2019, based on trends in our data. Specifically, brands can expect to see a 2x lift on Thanksgiving and a 3x lift through the remainder of Cyber5.
Our historical data suggest that discounts are less effective during this time of year than throughout the rest of the year, which means that large discounts are not necessary for Cyber5 and holiday success. Additionally, although supply chain issues seem to be resolving over time and supply is still exceeding demand, prices continue to climb and discounts are dropping. Current demand appears to make customers less price-sensitive and products less elastic.
Inflation is at play here, too, and has been in full swing since the start of the year, despite a slight slowdown in the summer. Prices have continued to rise drastically at Amazon, exacerbated by labor shortages in supply chain and fulfillment/delivery roles, as evidenced by the company’s performance in its Q3 earnings release. That being said, Amazon could serve as a bellwether for some retailers that are used to dynamic price-matching algorithms, whereas other retailers could end up following Amazon’s lead. Overall, the retail industry seems content to pass cost increases caused by supply chain turmoil and high demand on to shoppers, who are less price-sensitive this year than normal.
If reigning in your discount strategy was not already part of your Cyber5 plan, now is the time to revisit the numbers. Small-discount promos will take you far, and you can redirect your spend to advertising.
Yes, advertising will become more expensive during Cyber5. Looking back at 2018, for example, ad spends abruptly increased 4x on the first day of Cyber5, driven in part by a doubling of CPCs. This year, we expect ad spend and CPCs both to increase by 30%, but brands shouldn’t be afraid of the additional cost. We’ll say it again: don’t be scared of the spend! Sales growth outweighs the cost, and ROAS still tends to increase 10% over the holidays.
Just take a look at last year’s numbers. Brands increased their spend on retail media in the lead-up to Cyber5, with a significant spike from October to November and a less-dramatic increase into December. ROAS rose in parallel with ad spend.
This year again, discounting will not be a driver to win on e-commerce during Cyber5. We anticipate a war for efficient advertising dollars so that shoppers “see” the most promoted offers first.
Managing the E-commerce Flywheel
As we approach Cyber5, an interesting trend we’re seeing among brands that use CommerceIQ is that both OOS rates and Purchase Order fill rates are down for Amazon, while ordered units are up. This suggests that one or more things may be happening.
First, it could be that consumers are more willing to switch to a different variation of a product (such as a different size, color, or pack quantity) if their original choice isn’t available. And/or, brands are doing a better job of deciding which parts of Amazon POs they should fill.
The latter will be core to success in the coming weeks, according to CommerceIQ’s SME, Tod Harrick: “This holiday season, what brands really need to do is to learn how to manage their e-commerce flywheel — link ad spend closely to inventory levels to avoid creating and exacerbating out-of-stock issues.”
Out-of-stock has been falling since its peak in the summer, but our data show that it differs wildly by category. For instance, grocery is still very high, as is electronics (potentially due to a microchip shortage), while some hard goods like patio and garden are down. Also, revenue lost due to out-of-stock spiked in the past month, even as units fell. This suggests that the items that are out of stock are, on average, more expensive than they used to be.
Out of stock is always a danger, but this year, brands also need to pay close attention to shipping costs. The biggest shipping supply-chain issue is high prices due to a lack of container ship availability. Brands will be able to mask the impact of ship cost increases to some degree, thanks to inflation and higher purchase prices, as well as decreased discount levels.
Category-level Predictions for Cyber5
It’s not a big secret that the hottest holiday items are toys, skincare, home & kitchen appliances, and seasonal products. Pets, furniture, and power tools benefit from the Cyber5 ride, too, leaving only CPG unaffected during the holiday season. So what might happen to some of the biggest categories during the 2021 holidays? We dug into our data to make a few predictions.
- Unlike some other categories, toys did not see huge lift during 2020’s October Prime Day. Therefore, holiday toy sales were not pulled forward last year. This year, we anticipate that sales trends will follow the historic holiday spike pattern, with 85% lift over baseline and ~8% year-over-year growth, starting in early November and continuing through EOY.
- Suppliers continue to face supply chain difficulties, but those have been ongoing for more than a year. While OOS will increase by about 30% over baseline, they will likely be slightly lower than 2020 Q4.
- High discounting will take place in January as companies sell off excess holiday inventory.
Home & Kitchen
- Despite the fact that Prime Day was earlier this year, Home & Kitchen category sales appear to be headed for a slightly more muted holiday lift than in the past. We project that sales will increase about 90% over baseline during the holiday season compared to a 2.1x lift last year.
- Ad spend will double in Home starting in November and remain elevated through January. This is not due to increased CPCs, but to overall increased spending to take advantage of higher organic traffic.
- The Home category dealt with horrific supply chain issues in 2019 and 2020, but those have come mostly under control in 2021. Consequently, OOS does not appear as if it will impact Home holiday sales significantly.
- Discount levels will increase slightly (~10%) during the holiday season.
Stay tuned for more holiday insights over the coming weeks, including a post-Cyber5 report on daily performance results. In the meantime, take steps to reduce the impact of OOS via better advertising and planning. Learn how CommerceIQ integrates sales, marketing, and supply chain operations to enable brands to make faster, more accurate decision-making. Request a demo today.
See Amazon’s currently holiday deals. (Disclaimer: As an Amazon Associate I earn from qualifying purchases.)