Communicate speaks with Lovrenc Kessler, Partner and Managing Director at Simon-Kucher & Partners to learn more about the findings from their latest report on spending forecast during this year's Black Friday.
How has Covid-19 impacted Black Friday globally and in the region?
Covid-19 has created a [profound] impact on spending. People are spending more consciously, given the economic situation we’re currently experiencing. Based on our data, what we’re seeing is that consumers are shifting their purchase behaviour. This means that consumers are postponing their purchases and waiting for events such as Black Friday, where they believe they can get a better deal on products.
Consumers tend to over-shop during these peak periods, post which the line slowly starts to decrease. So based on the data, we can see a decline in sales as the holiday events come closer, then a peak and then again a decline, until the sales begin to gradually pick up again. Companies consider the Black Friday event to be a double-edged sword. On the one side, it allows them to position themselves as a brand or platform very prominently. And on the other side, they need to be aware that the partial success of such an event depends on the low level of sales volume before and after such an event.
Another effect of the pandemic has been the transition towards online shopping. While offline shopping still remains as the dominant channel in the majority of the regions, online shopping has been an increasingly popular option during the pandemic, due to the lockdown and safety measures. 96% of all sales happen in the offline channel but the pandemic has provided a big boost for online sales as well.
With the rise in popularity in e-commerce this year, why is Black Friday still regarded as an online and offline shopping event in the UAE and KSA?
Yes, our study shows that the popularity for offline shopping continues to be slightly higher than online shopping in the UAE and KSA, compared to the rest of the world. There are a couple of reasons for this.
On the one side, if you compare the different shopping occasions and venues across the world, they’re quite unique in the region. A lot of offline purchases happen in large malls that are easily accessible. But the mall also takes multiple roles among the different shopper segments. It’s not just a place for conscious purchase decisions. It’s also considered a place to spend time and socialize with family and friends. The malls are considered as such because you have limited [recreational] alternatives for a large part of the year. So, naturally, shopping becomes a part of that experience.
The other reason is infrastructure. In densely populated areas of Asia and Europe, shopping offline is a very tedious process. Our studies have shown that major cities in other parts of the world do not have a mall infrastructure quite like the GCC. Trying to find parking, driving into the city, no personal transportation, poor roads, etc, these are all considered barriers by consumers in other parts of the world when they try to do offline shopping in the mall. When we take these factors into account, online shopping seems more convenient.
The insights in the report suggest that budgets and spending desire for Black Friday have increased compared to previous years. This is contrary to studies that highlighted consumers are planning to refrain from spending too much due to the impacts of COVID-19. Could you share your comment on this?
This [contradiction] is something common in consumer industries. We tend to see a very big discrepancy between the consumer’s own perception of their behaviour as opposed to what they’re actually doing.
Here’s an example - The pandemic has created a great amount of uncertainty along with economic troubles. So if a consumer is in that situation, the first thing he/she does is cut down on large expenditures whether it’s downgrading to a cheaper house, postponing the purchase of a new car, etc. These kinds of expenditures are on top of the mind of the consumers.
But consumers also love to treat themselves. They think that since they made these big cut downs, they can buy something relatively smaller as a treat. This is also where shopping discounts tend to be very timely. For example – Instead of buying the new car i originally planned, I might buy a TV that’s got a great Black Friday deal on it. This is one phenomenon we observe in our analysis and if we dig a little deeper, what might look contradicting at first is actually quite easy to explain.
Why do consumers in the GCC region expect higher discounts than the rest of the world during Black Friday? What are the reasons behind this?
To answer this, we have to differentiate a little bit between UAE and KSA. In the UAE, we have seen a high increase in the number of retail outlets in the past couple of years. The number of retail outlets has grown faster than the population. This means that the increase in competition has led to more frequent discounts, and also what we call deeper discounts. Deeper discounts are just a higher percentage of discount than the standard 20-25%.
These deep discounts have an impact on consumer behaviour as well. If consumers see that these kinds of discounts on their favourite brands or products are possible, then they become conscious of it and adjust their purchase behaviour around it. We see this particularly when it comes to consumer goods.
In KSA, if you compare prices of products in certain categories to the prices in other parts of the world, they’re slightly higher in KSA. This price difference provides a room for discount which the consumer is expecting. KSA traditionally has been a very promotion driven market. Looking at the entire consumer goods industry, the share of items on promotion in KSA has been traditionally much more frequent compared to other parts of the world. Consumers are educated on this point, which is why they expect high discounts.
What will the post-pandemic market look like?
We feel that when it comes to online-offline shopping behaviour, the spike that aided online shopping to grow will continue post-COVID, but not at the same pace. Consumers will become more hybrid in their shopping habits. They will conduct their purchases based on the occasion. Businesses who want to thrive in such a market need to build a seamless omnichannel strategy in order to increase customer loyalty.
