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How Businesses Can Prepare for Black Friday Amidst Rising Inflation & Diving Consumer Demand

The biggest shopping mania, Black Friday, may still be a bit far off, coming on November 25, but it is never too early to start preparing for the big day. 

After all, this day rakes in some big numbers, with Black Friday online sales in the US coming in at $8.9 billion in 2021. More than half of consumers also begin their research for Black Friday months in advance.

Getting ready for the big holiday season means you have to optimize your site for speed and have product descriptions that sell. Besides using social media, email campaigns, and referrals to promote sales, have a dedicated section on your website. Amazon does a great job of cross-selling, referring to other items that may interest buyers. 

More importantly, you need to apply the correct discounts, and the bigger the discount, the better. 

To prepare for all this, you can learn from Amazon Prime Day, which has become a significant phenomenon and provides excellent insight into what to expect from Black Friday sales. 

Impact Analytics, which provides AI-driven solutions that optimize merchandising for the retail industry, researched the correlation between Amazon Prime Day and anticipated Black Friday promotional intensity, revealing some interesting results. 

The widely successful mega event

Amazon Prime Day is a sales extravaganza that lasts 48 hours and is specifically for Amazon Prime members. This sales promotion has become one of the most anticipated shopping events in the US.

Over the last seven years, the event has clocked in a massive GMV (Gross Merchandise Value) growth of ~11x.

Given this event’s success rate, the tech giant Amazon spends approximately $65 million on ads to promote the mega event. The anticipation, enticing promo deals, and the marketing buzz all contribute to this event’s continued success, so much so that Prime day has become the summer equivalent to Black Friday. 

This event is an excellent opportunity for analysts and data scientists to evaluate Prime day and determine leading indicators of shopping trends, consumer behavior, and expected promotional intensity. 

Amazon Prime Day highlights

In its latest study, Impact Analytics used sophisticated machine learning algorithms to observe this event and found that despite Covid’s negative impact on consumer demand patterns, Prime Day 2022 still clocked in a healthy 8-9% growth in GMV over the last year. 

Surprisingly, this increase in sales came amid the skyrocketing US inflation, which stood at 9.1% in June 2022, the highest recorded rate in the last four decades. Additionally, the average order value saw an estimated 16-17% increase over last year. 

The substantial spike in food, fuel, and housing prices drove consumers to look for savings and spend more on the deals offered during Amazon Prime Day. 

According to Impact Analytics’ data, the categories with the most attractive deals included smart wearables, small consumer durables/appliances, consumer electronics, home improvement goods, and Amazon’s brands covering Alexa devices, Kindle, Ring, etc.

Compared to 2019-2021, these products were on sale for huge discounts in 2022. In fact, the discounts doubled this year. 

The study further took a deep dive into Amazon’s best deals for Prime Day 2022 to see how these discounts compared to previous Prime days for the past three years. The company found a 10-20% increment on these discounts across the top categories under promotion versus last year’s Prime Day. 

Home improvement and casual apparel, two hot sellers during the pandemic but have since seen a lull in demand, recorded the deepest discounts this year. Household supplies and home improvement categories had an average of 30-40% discount, substantially higher than the previous three years. 

So, what can you expect?

With Black Friday on the horizon, Amazon Prime Day can be used to project what to expect from this shopping day after thanksgiving. 

Impact Analytics closely tracked price and promo information across major retailers and brands over the past few years. As a result, they found a clear correlation between Amazon Prime Day sales promo intensity and the ensuing Black Friday deals for the major categories, which tend to be under heavy promotions during these mega-events. 

This correlation is seen with the deals in the small appliances segment, which during Prime Day 2019 were ~7-10% lower than the historical average but ~5-10% higher in 2020. The same trend is seen in the subsequent Black Friday sales, where deals were ~5-7% lower in 2019 and ~5-7% higher in 2020 than the historical average. 

historical average

Some of the key observations made in this research include the Google Nest programmable wifi thermostat sold at a whopping discount of 38.5% by Amazon Prime, up from just a 23% discount. 

Another one was Bose Soundsport wireless earbuds which were made available at a discount of 23%, which they already discounted by 14% from the 2019 price. A Sony A80J 55 Inch OLED TV was listed at almost half its price compared to last year.

But be Beware

While Amazon Prime Day recorded growth in its sales in 2022, retailers cannot overlook the overall market condition. The current volatile macro environment is expected to affect this holiday season beyond just its promotions aspect. Inflation, for instance, is already affecting the prices, and this effect will also prevail during the holiday season. 

As we saw this past couple of years, the Covid pandemic has already made fundamental changes in consumer shopping behavior regarding preference for e-commerce, category shifts, and a heightened focus on health and organic products. 

Additionally, after about two years of supply chain woes, warehouses are now overflowing with inventory. According to Impact Analytics, “a classic bullwhip has led to widespread inventory glut across most major retailers in the US. This means that the holiday season will likely be sweeter this year, and possibly earlier too.”

Amidst this, retailers also have to consider the threat of looming recession. This presents a high likelihood for consumer behavior to recalibrate economic expectations downwards. This could mean postponing holiday purchases, actively hunting for better deals, and trading down across brands and categories. 

All of this, combined with tightening monetary policies, increased mortgage payments, and a worsening job market, means shoppers no longer have a lifestyle that encourages massive consumption. 

In June 2022, US consumer confidence dropped to the lowest in more than a year. In turn, retailers should expect a shift in consumer purchasing patterns during the holiday season, from loyalty to experience.

Get Prepared

As stated above, customers took advantage of the lucrative offers despite tightening their budgets due to rising inflation. However, it is essential to note that with inflation continuing to affect retailers and shoppers, consumers have become more cautious. This cautious approach has led them to purchase more consumer packaged goods (CPG) and household products and steer away from discretionary spending.

During such heightened price consciousness, Amazon could attract users by offering almost 2x deeper discounts on products under promotion compared to the previous three years. 

“Suffice it to say that with fears of recession, a challenging job market, and less capital in the hands of consumers worldwide, a majority of shoppers will not shop unless there are enticing discounts on the items they have wishlisted,” noted Impact Analytics in its report. 

This means retailers must prepare for this holiday season well in advance, more than usual. Adopting sophisticated forecasting solutions that advise downstream planning, pricing, and allocation and investing in the proper infrastructure will help accurately predict demand and set margin accretive promotions.

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