As the coronavirus pandemic continues to shift consumer behaviors, brands and retailers must adjust for the upcoming holiday shopping season earlier than ever. With the season fast approaching, new data from Klarna, the leading global payments and shopping provider which serves over 85 million shoppers and 200,000 retailers around the world, examines what its own proprietary data and its new holiday consumer survey reveals about what is driving Millennial and Gen Z shopping behaviors and how they plan to spend this season.
If one thing is certain, consumers will be shopping as the holiday season approaches. According to Klarna’s survey half of consumers say shopping is more fun than dating. Still, the global pandemic has forever shifted the way consumers look to shop.
“When looking at data from Klarna’s app in the U.S., which allows our 8 million customers to shop at any online store, we have seen major shifts in consumer shopping behaviors as a result of the pandemic,” said Sebastian Siemiatkowski, chief executive officer of Klarna. “From emerging retail categories like clean beauty and athleisure, to increased consumer preferences in buy now, pay later and an overall focus on e-commerce, we will continue to see many changes around holiday 2020. We also found that 59 percent of consumers expect a seamless shopping experience – both in store and online, for the holidays.”
Expanding the experience
Contrary to high demand for in-store experiences last holiday season, retailers will now put health and safety first. Stores including Target, Walmart, and Kohl’s will even be closing stores on Thanksgiving, one of the biggest shopping days of the year, in an effort for ongoing safety measures during the coronavirus pandemic.
To contend, experts say retailers will need to reinvigorate the digital shopping experience.
“COVID-19 has already left an indelible mark on the way consumers shop,” said Rod Sides, vice chairman, Deloitte LLP and U.S. retail and distribution sector leader. “We’ve seen significant growth in digital channels and a shift toward safer, lower-contact models, which is likely to continue during the course of the holiday season. Many retailers have historically looked to create welcoming shopping experiences so consumers would spend time browsing and looking for the perfect gift. This year, consumers might be looking for that influence online and through other social channels.”
Sides said that particularly for consumers under 35, individuals have been “increasingly concerned about making upcoming payments. That, combined with other economic indicators, mean that we will be looking for additional signs of rising financial concerns.”
Lori Zumwinkle, managing director and head of Accenture’s North America Retail practice further stated that what COVID-19 has highlighted is “that the digital shopping experience will need to improve considerably. Augmented Reality and Virtual Reality combined with holographic experiences can transform the online shopping experience by placing consumers in quasi physical-store conditions. Providing top quality and exciting digital content will be a key axis to differentiate from competitors.”
“E-commerce demand will most certainly stay at an elevated level [this holiday season], requiring a tight focus on seamless experiences and fulfilment efficiency,” said Zumwinkle. “Store traffic will be far more limited, and retailers who can entice customers to shop earlier will be able to better handle the peak and capture more sales.”
Dealing out discounts
Data from Coresight Research recently found almost half of consumers plan to spend less this holiday season, compared to last.
“Over 40 percent of Millennials and Gen Z shoppers expect to spend less this year, with a greater proportion of younger shoppers indicating this compared to older Millennials, according to our survey,” said Deborah Weinswig, chief executive officer and founder of Coresight Research. “Younger shoppers are early on their jobs or are recent graduates and will be heading into holiday season with a lower propensity to spend, given their low incomes compared to older shoppers. Savings rates in the US are also on the rise, and younger shoppers are likely to want to be frugal spenders until the dust settles around the crisis.”
According to Klarna’s survey, price, discounts, and free shipping would be the most important factors when shopping this season with 58 percent said deals and discounts would be the most important factor when making holiday purchases this year. Moreover, deals will likely trigger holiday shopping for consumers this year, with 68 percent of Klarna consumers saying they plan to start with Cyber Monday.
“Millennials, and Gen Z especially, are now leading the trends in retail, and not only demand more from brands today but expect more throughout the entire shopping experience,” said Siemiatkowski. “Gen Z prefer to shop for vintage clothing over new items, value customization and limited-edition drops, and 39 percent of them would spend more if they could break their payments into installments. They are savvy shoppers and know what they want to buy and how to spend their money responsibly. Brands that lean into these trends and alter their products and payment solutions will ultimately win big.”
Klarna’s data shows that “buy now pay later” options create a particular advantage for these consumers with a 40 percent increase in average order value when it is integrated into a shopping experience.
“For retailers who still want to preserve the traditional in-store holiday shopping experience, they will need to keep customers and associates safe, plus find creative ways to replicate the excitement of holiday shopping without the crowds,” said Nate Shenck, senior partner and leader of BCG’s North America retail practice. “This could include continuing to generate excitement and confidence with fewer, more personalized deals, bundling offers to capture customer and spend. Or being creative in how they reach consumers, generating awareness early of both the deals and the channels, and, potentially, an expansion of buy now, pay later programs for those who’ve experienced financial challenges in the pandemic.”
The social factor
While social distancing remains pertinent, consumers have become increasingly responsive to programs that include referrals, sharable offers, and social shopping. And Klarna’s data found that 79 percent of consumers would rather get holiday shopping advice from family and friends. Another 21 percent said they will look to social media influencers to advise.
“Social shopping and the trend around squad shopping is becoming a norm across the retail industry,” said Siemiatkowski. “Gen Z and Millennials are no longer looking at influencers in the same way and crave validation on what’s hot and trendy from their own networks of friends and family. One of the reasons 85 million people shop with Klarna is because we provide inspiration, value and convenience through our shopping experience with social elements and discovery.”
To date, Klarna consumers have added more than 2 million items to wish lists through the app. These shoppable wish lists allow users to gain followers and share ideas. According to Siemiatkowski these lists can also give brands insights into the top trending items. “These wish lists and other content channels build social and community engagement, as well as serve as a source of data that can help companies understand what shoppers are buying next and what they are recommending to their friends,” said Siemiatkowski.
Health over wealth
At the same time, the pandemic has shaped not only how consumers are shopping but what they are buying and while they remain price conscious 79 percent of respondents, from Klarna’s consumer survey, said they would rather be “healthy than wealthy” this holiday season.
“During the pandemic we have seen consumers spend on workout gear, including weights, workout clothes and other fitness gear to keep them healthy and in shape,” said Zumwinkle. “Outdoor activities are top of mind as customers have a newfound appreciation for getting out of the house. Retailers need to be in tune with these trends and consider assortment to cater to the current demands.”
Data from the Klarna app has also shown consistent increases in self-care related purchases throughout quarantine with top items including sleeping masks, facial protective primers, and concealers. According to Siemiatkowski, this trend will likely continue as consumers make purchases from themselves and others for the holiday season, saying “health and wellness will be top of mind for consumers and self-care products are likely to resonate with shoppers across age groups.”
Experiences were the second highest category spend on the Klarna app last year, though uncertainty has translated into a product focused gift giving holiday in 2020. Overall, consumers told Klarna products will be more popular than experiences this year as they search for gifts.