Exclusive: Promotions to play big role in 2023 holiday season

Matt Pavich, senior director of strategy and retail innovation at Revionics, an Aptos Company, talks with Chain Store Age about pricing and promotion considerations for the next quarter — and why he expects promotions will play a larger role in the 2023 holiday season.

Do you agree with Deloitte's forecast that holiday retail sales will increase by 3.5% to 4.6% compared to the same period in 2022? What are the main considerations feeding your own projections for this season, based on what you've been tracking and hearing from clients?

Although there will always be some variance in forecasts, Deloitte’s projections appear to align with other projections for the holiday season. 

The forecast also seems to confirm the fact that,  although sales are still increasing versus last year, the pace of increase is projected to slow in the holiday season. This makes sense when one considers that budgets will be tighter this year based on the cumulative effect of inflation and the pending impact of student loan repayments. 

While the Deloitte forecast represents the industry as a whole, it is safe to say that retailers that continue to offer great pricing and promotions at a time when budgets are constrained will outpace the market in growth as they have throughout the year.

Deloitte forecasts e-commerce sales will grow between 10.3% to 12.8%. Does this growth surprise you? From a pricing standpoint, how can retailers best prepare?

The continued growth of e-commerce shouldn’t surprise anybody who has followed retail, although the level of growth remains very nuanced based on segment. It’s also important to understand just how impactful inflation and low consumer loyalty has been in the market.

As consumers continue to look for better prices — whether online or conversely at retailers like Dollar General and Aldi which have lower e-commerce penetration — this could further impact the composition of retail sales. From a retailer’s perspective, pricing remains key as budget-conscious consumers will compare pricing across banners and channels to get the best deals this holiday season.

Are there any things you think retailers will do differently for holidays 2023 based on missed opportunities or lessons learned from the 2022 holiday season?

The 2023 holiday season offers more ‘normalcy’ for retailers with inflation cooling, inventory being less lumpy and some of the more acute disruptions being in the rear-view mirror. As such, retailers have more options on the table to pursue better strategies with fewer mitigating factors. 

One example of this is a larger focus on promotions and private-label offers which was harder to do when inventories were less certain. Promotions in general will play a larger role in the 2023 holiday season, as last year retailers were hyper-focused on adjusting regular, everyday prices during the peak inflationary periods and were less focused on the promo side of the equation. 

Although there are still inflationary pressures ongoing in the market, retailers have spent 2023 more focused on promotions and will continue to do so for the holidays. 

It’s being widely reported that consumers this year will be price-sensitive and deal/value-seeking. How can retailers capture meaningful holiday share, while avoiding a race to the bottom?

There is no doubt that consumers will seek value during this holiday season. With the majority of consumers being worried about the cost of essential items, the outlook can get even more dicey for discretionary categories.

There is clear evidence that retailers that are known for great pricing practices like Dollar Tree, Costco, TJX and Aldi are outpacing the market and stealing share from higher priced retailers. As such, pricing and promotions remain key to winning this holiday season.

 The most sophisticated retailers are using the best AI, analytics, and optimization platforms to surgically find the right prices and promotions for consumers across all products, channels and locations while delicately balancing share growth and margins.

Knowing that consumers will be doing heavy price comparisons for their holiday gift buying, how can retailers leverage sophisticated pricing capabilities to boost sales and price perception?  Do you have any tips and best practices.

Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals. 

 The most sophisticated retailers are leveraging the best strategies, processes, and technologies to gain share and attract new customers profitably in this complex landscape.

As an example, retailers can leverage advanced analytics to understand which items are the most important for consumers and how that importance might differ across locations and channels. Once these KVIs (key value items) are identified, a retailer can better focus on where to invest in price perception. 

Another example is dynamic pricing – the ability to price quicker than your competitor is a major strategic advantage that cannot be overlooked. If your main competitor is only able to change prices weekly and you can change prices daily or hourly, you are in full control of your destiny and can choose when and where to beat your competitor on the most important items to your consumers. Investments in ESLs and advanced pricing solutions can accelerate these results even further by giving retailers the ability to move faster and smarter than their competition.

Heading into peak period, what do you think are the top three things on retailers’ minds as it relates to making this the most successful season possible?

Although retail is very diverse and each segment and banner will have different priorities, these are some of the most pressing questions on retailers’ minds as they head into the holiday season:

• Will the trend of reduced store traffic continue through the holidays and if-so, will the growth of other channels or more effective basket-building strategies offset that reduction of traffic?

• How much will the combined impacts of student debt repayments returning and lower inflation (and in some categories deflation) impact total demand and revenue vs. last year?

• How can we improve our market position with better price perception while managing thinning margins?