- Tags : Retail Industry
By: ProcurementIQ Analyst, Michelle Hovanetz
Holiday sales are expected to reach a stunning $630.5 billion in 2016, up 3.7% from last year, according to the National Retail Federation. But between the upcoming holiday season and the end of the fiscal year, retailers and consumers aren’t the only ones gearing up for serious seasonal spending. Businesses of all kinds are preparing for everything the fourth quarter brings with it: holiday parties, increased advertising expenditure, temporary staffing shortages, financial reporting and, yes, even taxes. Surges in demand for seasonal services can lead to higher prices and longer lead times for buyers. ProcurementIQ has identified some common fourth-quarter purchases, including party and event planning, advertising, temporary staffing and accounting services, to help businesses make the most of their seasonal spend.
Party & Event Planning Services
According to a holiday party survey conducted by Challenger, Gray & Christmas, 89.0% of respondents indicated that their company would be hosting a holiday or year-end party in 2016. Moreover, of the businesses hosting parties, 66.7% planned to use an event planner, caterer or other outside service. As companies increasingly use third-party services for their year-end parties, demand for party & event planning services rises. Growing demand has contributed to price growth of 2.4% in 2016 and forecast growth of 2.6% in 2017, according to ProcurementIQ estimates.
Nevertheless, there are several market conditions buyers can use to hedge against rising prices. For example, as a result of low barriers to entry, there is low market share concentration and an abundance of freelance party planners and established firms from which buyers can choose. Competition among the numerous suppliers helps keep prices from rising more rapidly. However, switching costs in the party and event planning market can be high once a supplier is chosen. Such costs can come in the form of termination fees, planning delays and mix-ups midway through an event. For this reason, buyers should thoroughly evaluate providers prior to signing the dotted line. Once a satisfactory party and event planner is identified, entering a contract and developing a long-term relationship can help guard against future price growth and improve service offerings. Moreover, thinking outside the box can lead to savings worth celebrating. Rather than a holiday soiree, businesses can treat their employees by ringing in the New Year with a company party in January — once the holiday rush has died down and services are cheaper.
Because consumer spending surges each holiday season, manufacturers and retailers ramp up marketing efforts in the fourth quarter to capture as much of the holiday shopping boom as possible. TV and online advertising comprise the largest shares of ad expenditure by medium in the United States, according to Advertising Age’s 2016 “Marketing Fact Pack.” Retailers use these mediums to broadcast product information and offer promotions as means to boost demand for products and services during the holidays.
Television advertising usage has risen 0.6% from 2015 to 2016 according to AdAge. Fortunately, external factors have helped temper this demand growth. For example, a falling number of cable TV subscriptions has discouraged some advertisers from using this medium. Businesses also have many alternatives to TV advertising, which pressures prices downward. As a result, despite rising demand, price growth has been moderate, increasing an estimated 2.0% in 2016. ProcurementIQ expects the price of TV advertising to continue rising 1.7% in 2017.
Pricing trends for digital advertising alternatives are more favorable. Year-over-year growth in the number of online advertising providers drives competition in the market. Buyers are able to leverage the presence of many comparable suppliers to obtain lower prices. According to ProcurementIQ estimates, online advertising prices have been falling an estimated 3.1% in 2016, and are expected to continue falling 2.0% in 2017.
Falling prices and the availability of many additional service options (including newspaper, radio and outdoor advertising) increase buyers’ power in negotiations. Buyers also benefit from low switching costs when purchasing advertising services. Because buyers do not typically enter exclusive agreements with advertising suppliers, they are able to move freely from supplier to supplier to find the best deal.
While consumers are rushing out to purchase gifts and other holiday preparations, businesses are rushing to staff their retail locations, offices and warehouses. Seasonal staffing efforts drive a massive increase in demand for temporary staffing services. E-commerce sales, which according to ProcurementIQ estimates have been rising 12.3% in 2016, have played a large role in demand and price growth for temporary warehouse staffing, especially around the holiday season. Requirements from the Affordable Care Act have driven up compliance costs for suppliers, further contributing to rising prices. In 2016, temporary warehouse staffing service prices have been rising 3.6% according to ProcurementIQ estimates and are forecast to increase an additional 3.4% in 2017.
When purchasing temporary staffing services during the holiday season, buyers should be aware of the potential disruptions the seasonality of this market can cause. With so many purchases made online during the holidays, online retailers find filling warehouse vacancies and orders on time an ongoing struggle. High demand reduces the number of qualified temporary workers available in the workforce, leading to longer buying lead times and higher training costs. Seasonal labor shortages can also drive up prices in the short-term. For example, starting warehouse wages have been rising $1.50 to $3.00 per hour in some areas, according to staffing firm ProLogistix, as buyers have struggled to staff their warehouses for the holiday surge in business.
To avoid seasonal price spikes, buyers should determine the number of temporary employees they will require and their respective experience levels as far in advance as possible. Contracting with suppliers early can reduce the risk of price spikes for buyers and improve their ability to find qualified workers prior to the holiday rush.
Gifts aren’t the only things creating a surge in holiday spending activity, demand for financial and tax accounting services also typically skyrockets in the fourth quarter as most businesses prepare to close out their financial year. Toward the end of the year, businesses focus heavily on closing their books, compiling financial reports and preparing for the daunting tax season.
Prices in the accounting services market have been rising consistently in recent years in response to growing demand. The number of businesses has been rising steadily since the recession, increasing the pool of buyers in need of these services. According to ProcurementIQ estimates, accounting service prices have risen 1.5% in 2016 and are forecast to continue rising 0.8% in 2017. Moreover, once financial information is finalized for the fiscal year, businesses can begin preparing their taxes. ProcurementIQ estimates that prices for tax accounting services have been rising 3.4% in 2016. Prices are expected to grow an additional 2.2% in 2017 alongside an expected rise in IPOs, corporate profit and the number of businesses.
Despite price increases, buyers benefit from the highly competitive nature of the accounting market. The large number of suppliers and the ease with which new suppliers can enter the market temper the rate of price growth. Additionally, buyers of accounting services can potentially obtain discounted pricing based on their total contract value by bundling financial accounting for the end of the fiscal year and tax accounting for the impending tax season.
Planning for Seasonal Purchases
As the holiday season ramps up and the fourth quarter comes to a close, businesses can save big bucks, even during high demand, by examining key seasonal markets and identifying opportunities for negotiation and savings.