Frank Badillo, vice president and senior retail economist at Kantar Retail specializes in analysis and forecasting of economic, retail and consumer trends. He contributes to Kantar’s retail intelligence platform and regularly writes about the economic outlook for the monthly Retail Economist newsletter. He also directs the retail channel and product category forecasts for the annual US Retail Outlook. I chatted with Badillo about the upcoming holiday season and the state of the retail sector.

eMarketer: What is your outlook for the upcoming online holiday shopping season?

Badillo:

What we see that non-store sales and online shopping in particular have been very strong for the last six months. It’s been the strongest channel among of all of retailing. The channel is benefiting, to some extent, from a very weak year-ago comparison period, but it’s pretty clear that there’s strong demand for goods online. Right now through September is going to be key. There’s the back-to-school spurt, but we don’t really know what it portends for the holiday exactly.

A lot of demand we see tends to be skewed toward electronics. There are a lot of hot gadgets out there between the iPad, e-book readers and smartphones. All those things are driving very strong demand. Particularly with the e book readers, there’s a lot of demand among early adopters. The big question is to what extent a lot of that growth can be sustained in the longer term.

I suspect that we’re going to see very healthy growth into the holiday. It just may moderate somewhat from the very strong growth we’ve seen in recent months.

eMarketer: So consumer electronics in particular will have a strong holiday season.

Badillo:

Exactly, and particularly online.

eMarketer: Do you think online shopping behavior will be different this year?

Badillo:

In our monthly Shopperscape surveys, we ask a question about consumers’ spending intentions. The response has been steadily improving over the past year. There was a bit of a blip in our June number, but generally there’s been improvement in spending intentions over time. We expect that to continue and result in much better spending into the holiday than we saw last year.

But at the same time, there is some renewed uncertainty among shoppers that could curb some of the spending improvement in the coming months. I suspect that by the holiday time frame, some of that uncertainty should be cleared up and we’ll see the recovery continue, albeit at a bit more modest pace than we saw in the initial months of the year.

eMarketer: What key challenges will retailers face this holiday season?

Badillo:

Retailers cut prices pretty dramatically last year to draw shoppers and, in the end, it probably did more to weaken their top line sales as well as their profits. They will want to try to avoid the kind of ruinous price competition that they engaged in last year and try to be more strategic about it for this holiday.

Retailers are struggling with the extent to which they need to boost their inventories amid signs of rebounding demand. We’ve gone through a phase where retailers dramatically cut back their inventories. So now they’re slowly increasing those inventories again. The question is, to what extent they should continue to do that? There’s just a lot of uncertainty about whether they should do that.

I suspect we’ll see inventories expand a bit too much, which is going to put some downward pressure on prices for the second half of the year. We’ve already seen some signs of that in the apparel sector. There’s some growing price pressure in the sector after a good year or so of very slight price increases.

The inventory question is huge for a lot of retailers heading into the holidays, as well as the related pricing question. If there’s inventory overhang through the holiday, that’s going to put downward pressure on prices.

But there’s also the question as to when retailers should roll out promotions. Given how much price competition there was last year, I think retailers are going to look all the more closely about what they price-promote and the timing of those price promotions.

eMarketer: What are your projections for overall retail growth?

Badillo:

For total retail sales, excluding autos and gasoline, we’re looking for overall growth in the second half of the year of about 3.5%. The government numbers out today [July 14] show that we’ve had growth averaging about 3.9% for the last two months.

In terms of the government numbers, non-store sales are growing at a double-digit pace. Online probably represents the lion’s share of non-store sales. It’s also going to include catalog sales but I suspect that it’s the online shopping that’s driving the double-digit growth. We’ll continue to see double-digit growth in online sales through the holiday which can only mean that the average market basket size for any given shopper will grow significantly compared to a year ago.

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Yesterday, Netflix released its long-awaited app for the iPhone and iPod touch, rounding the company’s offerings for Apple’s iOS platform. Significantly, the app works using both a Wi-Fi and a 3G connection. In my limited testing, the quality of the video streaming does take a hit over 3G, but the convenience of anytime, anywhere access makes for a fair trade-off.

This move dovetails nicely with my upcoming report on mobile content, which predicts a threefold expansion of the US mobile video audience between 2009 and 2014. In the report, I point out that attracting subscribers hinges on the right content, questions of cost and the quality of the viewing experience. Historically, these latter two factors have impeded the growth of mobile video.

The fact that the Netflix app has jumped immediately to the top of the charts of the most popular free iPhone apps provides strong evidence of pent-up demand for a video service that combines a deep catalog of content, multiplatform viewing and quality streaming. Netflix recently deepened its catalog with a nearly $1 billion deal with Epix that will add access to films from Paramount Pictures, Lions Gate and MGM.

In the wake of the Netflix launch yesterday and the introduction of Hulu Plus in June, consumers have increasingly rich options that combine online and mobile video streaming, and that is what will propel the market over the next five years. Although ad-supported video will grow more quickly, subscriptions will still account for the bulk of mobile video revenues, more than doubling from $413.4 million in 2010 to $901.2 million in 2014.

Have the issues associated with viewing quality and cost been solved? Not entirely, but let’s consider how these issues might play out.

Mobile bandwidth is certainly more plentiful, more ubiquitous and more reliable, although it may be the case that the amount of data mobile consumers use will always expand to fill the ever-widening pipes. However, Wi-Fi access points and, increasingly, WiMax networks will help alleviate some of the strain being put on the existing infrastructure.

As for cost, the ability to watch across multiple screens helps amortize the expense of a service such as Netflix or Hulu Plus. Of course, there is the looming issue of tiered bandwidth pricing and its potential impact on mobile data consumption. But here again, Wi-Fi is likely to provide a remedy. Plus, there is little evidence to suggest that mobile will become a primary platform for video consumption anyway (according to Nielsen, for example, the amount of time spent viewing video on mobile devices has remained stable over the past year).

In the end, it all comes down to platform integration. Consumers will increasingly expect video content (along with games and music) to be available on demand or via subscription on TVs, mobile and PC. The content owners that will thrive in this digital ecosystem are the ones that understand the need to deliver seamlessly across every possible platform.

Speaker: Noah Elkin, eMarketer Senior Analyst
What: Mobile Marketing Trends, Insights and Best Practices
When: Thursday, August 26, 2010, 1 PM ET

To listen and watch playback of the Webinar, click here. You can view the PowerPoint deck below.

View more presentations from eMarketer.

Join eMarketer Senior Analyst Noah Elkin to find out about:

• How the mobile audience is changing thanks to the steady advance of smartphones and tablet-style computers such as Apple’s iPad
• The outlook for the leading smartphone platforms and the
  “app-ortunity” for marketers
• How the evolving mobile audience is using smart devices to access media and content
• Consumer attitudes toward mobile advertising and marketing
• How companies are succeeding with mobile marketing—both web- and app-based—with specific examples and case studies
• Ways that marketers can take advantage of the growing base of mobile gamers, music listeners and video viewers to reach consumers

About Noah Elkin
Noah Elkin covers trends in mobile marketing, usage, content, devices and commerce. In addition to his analyst duties, Noah is co-founder and co-chair of the Search Engine Marketing Professional Organization (SEMPO) Emerging Technologies Committee, which focuses on developing thought leadership around the intersection of search and new content and technology platforms like mobile, interactive TV and social media. He also serves on the Direct Marketing Association’s iDirect Leadership Committee.

Noah writes a monthly column on digital advertising trends for iMedia Connection and has been quoted in the The New York Times, The Boston Globe, The Wall Street Journal, Investor’s Business Daily, DMNews and Internet Retailer. Noah speaks regularly at industry events and conferences, including Search Engine Strategies, Search Marketing Expo, Digital Publishing & Advertising Conference (DPAC), SEMPO roundtables and DM Days.

Sponsored by: Adobe, Featuring Omniture Technology

Healthcare communications expert Bruce Grant testified about pharmaceutical marketers’ use of social media before the Food and Drug Administration in the fall of 2009. Grant has more than 30 years of experience in pharmaceutical promotion, medical education, digital media design and production. Prior to joining Digitas Health, he served as managing director of the pharmaceutical marketing consulting firm eStrategies and director of innovation at Frontier Media Group.

I chatted with Grant about how pharmaceutical marketers can participate effectively in social media and potential scenarios for FDA regulation of social media.

eMarketer: Can you provide a brief synopsis of the testimony you offered to the FDA last fall?

Bruce Grant:

We reported on research results that applied to one of the questions the FDA asked, which was, should special considerations apply to pharmaceutical communications in social media or online banner ads? We had conducted research in the fourth quarter of 2009 on the treatment of risk information in banner ads and suggested that there was a case to be made for the so-called one-click rule that would place the full text of the risk information one click away from the ad.

eMarketer: Are the issues surrounding social media different than the online advertising issues facing pharmaceutical marketers?

Grant:

They’re totally different. Advertising is premised upon the assumption that marketers can tell people what to do and think and that if we tell them often enough and interrupt them in enough different venues, that they will do and think what we tell them to do. Social media is premised upon people turning to each other, not large institutions, to get the resources and the information that they need.

In many ways, social media are used by consumers as an antidote to a particular kind of interruption marketing that consumers, for the most part, find unhelpful. The FDA certainly looks at what kind of communications pharmaceutical manufacturers can make. Under FDA regulations, essentially everything promulgated by a pharmaceutical company that touches on its brands is considered to be either advertising or what it calls “labeling.” Ads are ads. Everything else is labeling and, essentially the same regulations apply to both of them.

If you’re a pharmaceutical manufacturer communicating about a prescription drug, your message has to be fairly balanced between information about the benefits and the risks associated with your brand. You cannot promote uses for your brand that are not on the label. You cannot overstate the benefits of your brand or minimize the risks associated with your brand.

eMarketer: Online hubs including PatientsLikeMe, HealthCentral and WebMD help facilitate a lot of conversations among consumers around symptoms and treatments. What do you make of them?

Grant:

Those are examples of large aggregators of patient communities. I think what’s important to note is that this is not a new phenomenon. The truth of the matter is going back even before consumers had any kind of widespread access to the Internet, there were dial-up services like America Online and CompuServe that offered communities, forums and chat. In some ways, these newer sites are simply carrying those ideas forward and are opportunities to commercialize or provide avenues for pharmaceutical marketers.

eMarketer: What do you think the FDA guidelines on social media will suggest?

Grant:

We believe that the FDA will issue one or more guidance documents probably by the fourth quarter of this year. It won’t provide channel-by-channel instructions for using Twitter and Facebook, but will clarify things for marketers about participating in social media.

In our view, the real barriers to the pharmaceutical industry participating in social media are the same ones we saw in other industries over the last three to five years. The industry needs to start from the premise that social media is about people getting what they need from one other rather than from large institutions.

The challenge is how do marketers relate to this? How do they exist in a world where there’s a big conversation that’s been going on before they arrived on the scene? How do they exist where the level of trust that people participating in the conversation have for each other, is higher than the level of trust they have for any marketer seeking to enter the conversation?

eMarketer: What can marketers do besides creating best practices for participating in social media while they wait for FDA guidance?

Grant:

Marketers haven’t yet fully learned how to listen. That’s the first thing you do. It’s a no-brainer if you think about real-world conversations. You listen to the conversation that was going on before you got there. Who are the participants in the conversation? Who has influence in the conversation? What are their concerns? What are the topics of conversation?

We recommend creating a structured program of listening as an ongoing process. After you’ve been listening for a period of time, and you’ve gotten a sense of the participants and their concerns, there comes a time when there’s an opportunity for you to say something. And in a real life conversation, the most important thing you can say is something that responds to the conversation that’s been going on.

Do you have something to offer? Can you point people to a resource that’s relevant to the needs and interests that have been expressed in the conversation? As you do that, then you pick up credibility. People come to know you. People come to trust you. And you can reach out into the conversation with an idea of your own. You can change the subject at that point because you’re known, because people trust you and because you offered something of value and relevance into the conversation, perhaps repeatedly up to that point.

Listen, respond, reach out. Sadly, there are people from social media properties who are out there just trying to sell ad space, sponsorships or other things.

Look, in contrast, at what AstraZeneca is doing with its Twitter account AZhelps. The company is monitoring Twitter for any mention of the AstraZeneca brand, for people having problems getting the brands under their prescription plan, being able to afford AZ brands and problems with side effects. AstraZeneca is responding to patients with very brief, direct messages on Twitter. For example, “saw your tweet about the cost of Nexium. AstraZeneca may be able to help. Call 1-800” and so on.

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American consumers have plenty of alternatives to live TV, from TiVo and Apple TV to Hulu and YouTube. Content providers have kept some of the more popular programs off the Internet, so consumers have largely kept to “appointment TV.”

But their patience may be wearing thin. Internet use now rivals time spent with TV, according to Forrester Research data cited in Barclays Capital Internet Data Book August 2010. The idea of watching what they want when they want it is now ingrained in the consumer psych, more of a right than a privilege.

Several stories and research reports published in the past month seem to carry soothing statistics—at least for content providers—that the status quo is not threatened. In fact, a recent story in The New York Times seemed to assure that consumers are still hooked on TV—specifically premium cable content—and are not seriously thinking of cutting the cable cord any time soon. A New York Times/CBS News poll taken in August that found an overwhelming 88% of respondents paid for traditional TV service while just 15% had considered replacing their expensive cable habits with Internet video services like Hulu and YouTube.

Likewise, Comcast’s annual “TV Pulse Survey” showed 80% of consumers said they still regularly watch live primetime TV. Parks Associates’ “Digital Media Evolution II” reported that just 40% of US broadband households watched long-form video content online. And not to worry, content providers: most of it was just time-shifting from normally watched live TV shows.

But a new game’s afoot here: Comcast’s data also showed that 62% of consumers have watched primetime TV shows in time-shift mode in the past year and that use of time-shifting technology increased 61%, via DVRs, on-demand services, online or mobile. The top reason for time-shifting was a conflict with their personal schedules (79% of time-shifters). Programming conflicts claimed fewer respondents(63%).

Back in June, Nielsen’s Q1 2010 Three Screen report  showed the number of time-shifters grew to 94 million, up 18% in Q1 2010 compared with the same quarter in 2009. Although the amount of time Americans spent watching TV also increased by two hours per month during the same period, the average time spent multitasking with TV and a PC rose 9.8%, to 9 hours and 36 minutes per month.

Expect that shift to keep accelerating, as even more easy-to-use Internet-ready TVs reach stores—and living rooms. Some predictions:

• 65% of the 220 million flat-panel TVs sold in 2012 will be web-enabled and eventually connected to the Internet, according to investment firm Piper Jaffray .

• 98 million US broadband households will own web-enabled devices in 2014, for an installed base of 237 million devices, according to In-Stat .

• 57 million of all broadband households will be watching full-length online video programming on their TVs in 2014, In-Stat estimates.

Consumers already have the will to switch from cable and satellite providers. (The most notable part of the New York Times article was the pent-up animosity toward these providers, expressed by interviewees.) What they have largely lacked is the simple technology to make it happen. But the impending launch of Google TV, expected upgrades to Apple TV, Verizon’s recent announcement of an iPad app that streams live TV and many more efforts in the works, it looks as if the time is near—and inevitable.