During Target’s Q3 earnings call earlier this fall, one word was on the tip of every executive’s tongue: affordability.
To give just a few examples, CEO Brian Cornell said recent investments were aimed at “providing an affordable, easy, and joyful guest experience,” while Chief Growth Officer Christina Hennington coined what may be a new corporate neologism.
“With a combination of everyday low prices, compelling promotions, and exciting savings events all season long, we aim to be the holiday destination for affordable joy,” she said.
Other retailers were similarly focused on how they plan to lure price-sensitive customers this holiday season, and their reasoning was fairly consistent. Consumers are still willing to spend, but they are being more cautious or “choiceful,” to use another popular industry term.
Evidence for this prognosis mounted during the Black Friday–Cyber Monday period with those sales events seeing sizable annual gains amid record discounts of up to 31% off listed prices. This tracks with a recent Deloitte survey showing that consumers are concentrating their shopping around the sales events in order to stretch their budget.
But with those discounts coming to an end, retailers are faced with a fresh challenge: how to keep bargain-hungry customers coming. According to Lupine Skelly, research leader for Deloitte, the “million-dollar question” facing the industry is whether the holiday season overall will prove disappointing, as some major companies are predicting, now that the biggest deals are done.
She explained that “retailers are in a tough spot now,” because once they start offering heavy discounts, “it’s really had to claw that back.” Customers are more likely to say, “Okay, I’m not purchasing from you until I see that [discount] again.”
Pulling the discount lever: In effect, retailers have trained consumers to expect discounts, Skelly added, and they may need to “pull that lever” to sustain demand.
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In addition, the pressure to draw customers with bargains could continue past the holidays. A report from Ernst & Young found that the number of consumers basing their purchasing decisions on affordability is up 10% from 2022.
“Cost-strained consumers want to know they are getting a deal, or they simply won’t prioritize a purchase,” Kathy Gramling, consumer industry markets leader at Ernst & Young Americas, said. She added that many consumers are now “shopping sales all year round.”
The professional services group noted that “sales are no longer a ‘moment in time,” and that retailers need to anticipate consumer needs in real time to come up with the right product assortment.
Cheaper assortments: Along those lines, Skelly said retailers will likely experiment with other methods of attracting and retaining customers, such as loyalty programs or free gifts. “It’ll be interesting to see if they lean on those levers rather than pricing,” she said.
Target, for example, is already trying out new ways to market its affordability sans discounts. The general merchandise chain recently promoted its “thousands of affordable, trendy toys and games under $25 across its broad assortment” in a release. It used similar language in a promotion for Thanksgiving dinners under $25.
Indeed, ensuring an affordable product mix is top of mind for other retailers as well.
In their recent earnings calls, Macy’s emphasized that its department stores offered a mix of products with price points ranging from off-price to luxury, while Kohl’s CEO Tom Kingsbury said during an earnings call that the company planned to offer more “high-volume price items” and key value items going forward.
“We want to make sure whatever we do, it's the right thing to do for the long run.”