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Holiday Forecast: China-Direct Discount Apps will Attract Value-Conscious Consumers

Holiday prep is kicking off and Salesforce has predications to help retailers prep better.
Photo credit: adobe.stock.com

It can be a bit jarring to start worrying about the holidays just as summer is powering up, and yet that’s exactly what many retailers are doing, particularly as the socio-economic environment continues to throw curveballs at commerce. 

“The global economy is still in flux,” said Rob Garf, VP and General Manager of Retail and Consumer Goods at Salesforce at a recent media briefing. “There is risk from sustained inflation, where we thought there’d be some leveling off; to high interest rates, which is turning into increased credit and people carrying that debt; to global conflict that is not only impacting the natural resources we have but also the way that products are getting from manufacturing all the way to consumption. We are also seeing that shoppers, while seeming strong because they’re continuing to buy, are offloading inflation onto debt. Yes, we’ve seen steady upticks in online sales, but it’s not because of increased consumption, it’s almost solely because of increased prices.”

Lucky for everyone then that Salesforce is at the ready with its annual holiday predictions, based on more than 1.5 billion commerce-focused consumer interactions as well supplemental consumer research.

Salesforce: Consumers are shifting inflation into debt.

According to Garf, 37% of consumers say they’re using credit cards more than they did last year, and consumers also are continuing to lean into alternative financing tools like buy now, pay later, not just for big-ticket purchases but also for smaller transactions. As a result of this growing debt load, consumers “are becoming more discerning and they’re trading down” with the Salesforce survey showing that 40% are buying less than they have [previously] and 85% are swapping for lower-priced items.

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So what does all this mean for the holiday season? It will be all about value, both in terms of price point and experience, said Garf.

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Consumers are Flocking to China-Based Discount Apps

Salesforce: China-direct apps like Temu and Shein are set to make $160 billion outside China this holiday season.
Image courtesy Salesforce

With value the name of the game this season, it’s no surprise that Chinese-based shopping apps like Temu, Shein, AliExpress and yes, TikTok, are in a prime position to capture holiday spend, particularly since they’ve spent so much money of their own recently raising awareness in the U.S. “As the consumer leans more into value, these apps are playing right into that hand,” said Caila Schwartz, Salesforce’s Director of Consumer Insights and Strategy at the briefing.

In the last six months, Salesforce found that a staggering 68% of consumers outside of China have made at least one purchase on a Chinese shopping app, and 63% said they are already planning on using those same apps to make holiday purchases. Millennials in particular are eager to take some of the bite out of holiday shopping by turning to these discount apps, with 65% saying they plan to purchase from a Chinese shopping app over the holidays — increasing into the 80% range among millennials with children. Given all that, Salesforce is predicting these apps will rake in more than $160 billion in sales outside of China this holiday season.

Salesforce: Consumers top Chinese shopping apps.
Image courtesy Salesforce

Consumers’ eagerness to use these newer shopping platforms is due almost solely to price, with 58% of survey respondents saying that’s the number one reason why they use these apps. “They’re not buying from these apps because they have better products or because they’re going to get the product more quickly; it’s purely down to price,” said Schwartz.

Garf also noted that Salesforce found that last year, spending on these apps was largely incremental because it was a “new and novel shopping experience that people were testing.” However, this year he expects that spending will steal market share from other channels, in particular dollar stores and other online marketplaces.

“The dollar stores are going to feel the pinch from this,” said Garf. “The second [group to likely lose share] is the marketplaces, where there was such a value on immediacy,” but with all the economic pressure on consumers there will be a greater willingness to trade off speed for free shipping and lower-priced items.  

One channel that will remain insulated from discount shopping apps’ draw is another hot sector of online commerce — resale. This is because “the resale market fits so nicely into the value equation,” explained Garf. “[Resale] actually triangulates a couple of macro factors that we’re seeing in the marketplace: first, that consumers are seeking value; second, that, especially younger generations, do really value, to the degree they can afford it, saving the planet; and the other piece is vintage is really ‘in’ still, and it’s a very easy way to find vintage, on-trend merchandise. Connecting those three macro-trends puts the resale market at a very favorable position during the holiday season, even in lieu of these other ultra-value type of shopping vehicles.”

AI Will Drive More Shopping Searches, and Conversions, Than Ever

Following on another big trend of the year, Salesforce also predicts that consumers will embrace AI tools this year even more readily as they search for holiday gifts. That’s saying something, given that Salesforce estimates that AI, both predictive and generative, already influenced $199 billion in sales worldwide last holiday season, accounting for approximately 17% of all holiday orders.

Salesforce: Consumers will embrace AI search this holiday season
Image courtesy Salesforce

This year, consumers already are leaning into AI even further, with 53% saying they’re interested in using AI for gift inspiration. This continued adoption will be further bolstered by new offerings from the likes of Google and Apple, said Schwartz: “We expect consumer adoption and ease with using AI to become even more pervasive now that these big tech platforms are adopting it into their strategy,” she said. “This holiday season, we see a significant opportunity for brands and retailers to utilize [AI in] site search, which coincides well with the changes that Google is making to their search offering.”

At the moment, the share of online shopping visits where a site’s search bar is used is relatively low — less than 10%, according to Schwartz — but site search accounts for more than 20% of all online orders, so providing a good search experience can do wonders for conversion. “When AI is embedded within site search it has a conversion rate of nearly 5%, compared to the average [site search] conversion rate of 1.8%,” said Schwartz. “It’s just a staggering difference. It comes down to connecting consumers with product quickly — getting them in front of the right product, at the right time, at the right price. This is going to be a huge opportunity, especially as more consumers get more comfortable with those generative AI search functions.”

Many retailers are ahead of the game, having already integrated generative AI features into their site search, including Poshmark, Shopify, Amazon and Walmart. Not to mention those that have launched AI-powered tools specifically targeted to gift-giving, as Etsy has done.

Still, while AI is predicted to play a huge role in holiday searching this year, it’s not quite at the point of ubiquity. “There is a chicken-and-egg type of situation here,” said Garf. “Each individual retailer adopting AI in search isn’t going to move the needle, but as consumers continue to adopt AI on Google, on Facebook, on fill-in-the-blank tech platform, and get used to it and see the value, that’s when we’re really going to see the flywheel kick in.”

3 Other Key Trends to Keep an Eye On: Middle Mile Costs, Repeat Purchasers and Black Friday

These weren’t the only predictions Salesforce laid out as retailers prep for the holiday season:

Holiday Spending Spread will Reverse, Centered on Black Friday

Salesforce: Black Friday becomes Cyber Friday this holiday season
Image courtesy Salesforce

For several years now, analysts have noted an expansion of the holiday shopping period, driven in large part by Amazon’s October Prime Day event and competing sales at other retailers. But as Salesforce pointed out, there is still a concentration of purchases in that classic Cyber Week period, and Black Friday in particular looks set to reign supreme this year.

“Black Friday has actually been gaining back sales from those other [shopping] moments, even throughout Cyber Week, so we’re seeing sales get even more concentrated,” said Schwartz.

More than two-thirds of consumers (67%) said they plan to hold out on making big purchases until Black Friday this year because they believe that’s the day they can find the best deals. “But what we’re also starting to see is that consumers are leaning into digital on Black Friday versus going into the store,” added Schwartz. “72% of consumers said that they prefer to shop online on Black Friday, and the reason is because of convenience — free shipping is more ubiquitous and they’re able to shop for the right, or the best, price. It’s easier to price compare online than it is to hop around between brick-and-mortar stores. As the shopper continues to be more value-conscious, they’re going to be doing even more price comparisons, so they’re going to be leaning into digital this year to help them do that.”

Repeat Purchasers Can Offset Soaring Marketing Costs

It’s no secret that digital marketing costs are skyrocketing, due to a combination of election ads and ads from the aforementioned Chinese shopping apps snapping up ad inventory. In Q1 2024 Meta shared that approximately 10% of their total ad revenue came from one advertiser, Temu, according to Schwartz.

Digital marketing inventory is getting scarcer, which is driving up cost for everybody else,” she said. “So we see a unique opportunity this year to lean in to loyalty, because shoppers are becoming more loyal. Over the last two years, we’re seeing the rate of repeat buyers is growing at 8% year over year.

“This year, we predict that two out of every five holiday purchases will be from a repeat buyer, around 40%,” Schwartz added. “What’s interesting about that is the holiday season is when we see the least amount of repeat buyers across the entire year, because it’s a time when shoppers are turning to brands they might not have purchased from before, because they’re buying gifts. However, we’re seeing a shift in the holiday period where more and more consumers are staying loyal to their favorite brands.”

Middle Mile Costs will have Retailers Feeling the Pinch

Salesforce: Rising container and flight costs are putting strain on the middle mile
Image courtesy Salesforce

We’re seeing rising container costs and longer flight times,” said Schwartz. “We haven’t seen rising container costs since 2021. In 2022 and 2023, they came back down to normal pricing, but we’re now starting to see them spike back up and stay elevated. We’re also seeing longer freight times because of the challenges happening overseas with global conflict. So it’s putting strain on getting not only products to port but getting it into port at a reasonable price. We expect retailers will spend around $197 billion globally in middle-mile costs [this holiday season], which is about a 97% year-over-year increase.”

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