Cyber Monday signifies the most lucrative period for online retailers, offering a significant boost in sales, with this year expected to be no exception. While brick and mortar holiday sales starting from Black Friday are expected to show tepid growth due to an unpredictable economic environment and challenges like interest rate hikes, eCommerce sales are anticipated to grow handsomely, helped in part by built-up demand from customers waiting for holiday sales to hunt for bargains. Analyzing early trends and recent forecasts for the fourth quarter holiday season provides insights into the likely outcomes during and after Cyber Week.
Adobe expects U.S. online holiday sales from November 1 to December 31, to reach $221.8 billion this year, representing 4.8 percent year-over-year growth. This represents an acceleration in online sales growth over last year when online sales grew a more modest 3.5 percent. Cyber Week, the shopping period including Thanksgiving, Black Friday and Cyber Monday, is expected to generate $37.2 billion in online sales, a 5.4 percent increase year over year.
Deloitte, on the other hand, is forecasting eCommerce sales to grow between 10.3 to 12.8 percent year-over-year during the 2023-2024 holiday season. The consulting firm expects total eCommerce holiday sales to reach between $278 billion and $284 billion this season, significantly higher than Adobe’s prediction.
It is not apparent what explains the large difference between the two estimates. However, it is notable that both forecasts anticipate significant online sales growth during the holiday period. That much does not seem to be in question.
While last year Federal Reserve rate hikes intended to dampen inflation had a negative impact on consumer demand, this year inflation has largely been reined in. Nevertheless, at least one more rate hike is expected by the Fed, which is curtailing demand. The current inflation rate, which reached 3.7 percent in September, is still above the target rate of 2 percent, but much lower than the 6.4 percent inflation rate at the beginning of the year. This will alleviate the pressure consumers feel from what was dubbed a cost of living crisis in most Western economies. In fact, Adobe’s Digital Price Index shows prices online have fallen consecutively for 12 months, decreasing 3.2 percent as of August 2023.
However, in the U.S., consumer credit card use continues to climb, with total credit card debt exceeding $1.08 trillion already in the third quarter of 2023, according to the New York Fed. Increased consumer debt makes it likely that holiday shoppers will experience buyer’s remorse in the aftermath of the holidays, leading to more opportunistic friendly fraud chargebacks and other forms of first party misuse. A senior Visa employee previously told Axios that friendly fraud increased in most markets by 20 to 30 percent in 2022. In addition, a majority of North American merchants with over $50 million a year in revenue surveyed by Justt this summer reported that they were seeing increased chargebacks in 2023. Thus, it seems likely that the trend of rising friendly fraud chargebacks year over year will continue in the 2023 holiday shopping season. The question is not whether friendly fraud will increase, but what is the overall size of the increase to be expected.
Similarly, return fraud and refund abuse are experiencing growth in general in the U.S. and Europe, according to anecdotal reports from major retail brands at industry conferences. Therefore, it seems like that such first party misuse and policy abuse will register an increase during the 2023 holiday season and its immediate aftermath. Unlike with friendly fraud chargebacks, there is little data to quantify the expected size of the impact on sales revenue in 2023 as compared with previous years. However, based on a National Retail Federation report from 2022, return fraud alone last year reached 11 percent of total eCommerce returns in the U.S. or $22.8 billion. Assuming a similar percentage of returns are fraudulent during the 2023 shopping season seems to be a fair and conservative estimate.
Supply chain issues, which had been a significant issue for meeting consumer expectations in order fulfillment over the past two years, are expected to be relatively minor this year in comparison. Reduced water levels in the Panama Canal in the months leading up to Black Friday have restricted transoceanic shipping capacity and lengthened delivery schedules somewhat. However, the massive logistical issues caused by the pandemic have largely been resolved. Issues from the past year, such as a shortage of truckers and labor strikes at major ports are less present this year. Meanwhile, the ongoing wars in Ukraine and Israel are not having a significant impact on logistics, as supply chains have already adjusted to war in the former and the war in the latter is not expected to impact most supply chains directly. In the case of the war in Israel, any major impact would be through a possible spike in energy prices – something that has not yet occurred despite over a month of fighting.
Online sale discounts are expected to reach record highs – up to 35% off listed prices – this holiday season, according to Adobe. The deepest discounts are expected to hit during Cyber Week. These discounts should encourage consumer demand growth this year during the holiday season despite an unpredictable economy, as job growth slows and the unemployment rate increased slightly to 3.9 percent in October.
Another related source of spending growth this holiday season is the flexible Buy Now, Pay Later (BNPL) payment method. BNPL based sales are expected to drive $17 billion in online spending this holiday season, up 16.9 percent year over year and $2.5 billion more than last year. BNPL continues to be a boon to retailers who have adopted the alternative payment method in recent years. Nevertheless, according to Justt’s recent merchant survey, a majority of North American merchants (53%) with sale revenue over $50 million per year still haven’t adopted BNPL.
Thanks to anticipated healthy growth in eCommerce sales, Cyber Monday is expected by Adobe to generate a record $12 billion in spending, a 6.1 percent increase year-over-year.
Of course, a strong Cyber Monday means we can expect a similar growth in chargebacks compared with last year. A reduction in shipping-related chargebacks should be counterbalanced by overall growth in friendly fraud as more and more consumers became familiar with misusing the chargeback mechanism to get their money back while often keeping the merchandise.
Over 40% of annual chargebacks typically occur in Q1, following the holiday season's peak. Retailers must prepare ahead of the Q1 surge for an increase in customer disputes, particularly with the continued expansion of online, card-not-present sales, which are more prone to chargebacks than brick and mortar, card-present sales.
For more information on how to tackle large volumes of chargebacks efficiently and effectively head to the Justt homepage.
