Retailers will unofficially kick off the holiday shopping season on Friday with a host of discounts and other tempting deals. But executives are increasingly concerned about a slowdown in spending that could dampen sales in the wake of Thanksgiving and during the holidays.
Shoppers, buoyed by a strong jobs market and steady wage growth, have shown a resilience that has confounded economists and flies in the face of bitter sentiments expressed in opinion polls. This spending, while prudent, was made despite rising prices on grocery aisles and rising borrowing costs.
But consumers are now under increased pressure from declining savings, rising credit card debt and persistent inflation. In fact, consumers reduced their purchases in October, ending six consecutive months of increases. Consumers have been somewhat relieved by falling inflation, but many goods and services, such as meat and rent, are still much more expensive than they were three years ago.
The latest quarterly results from a range of retailers, from Walmart to Best Buy, show a decline in consumers. Walmart said it noticed consumers cutting back on purchases in October and gave a moderate annual sales outlook.
Best Buy, the nation’s largest retailer, revealed that consumers are switching to cheaper TVs. As for Target, it said consumers are waiting longer to purchase items. For example, instead of buying cotton sweatshirts or jeans in August or September, they wait until the weather turns cold.
“It’s clear that consumers have been remarkably resilient,” Target CEO Brian Cornell told analysts last week. Yet in our studies, things like uncertainty, prudence, and managing a budget top the list of concerns. »
Even luxury retailers are finding that their customers feel cramped.
“We are taking a measured approach. There has been some softening, admitted Marc Metrick, CEO of Saks Fifth Avenue, Saks’ standalone online business. I don’t think the holidays will be horrible, nor that they will be explosive. »
The U.S. National Retail Federation, the nation’s largest retail trade group, expects consumers to spend more this year than last, but that their pace will slow due to economic uncertainty .
The group forecasts that U.S. holiday sales will increase 3% to 4% between November and December, compared with growth of 5.4% a year ago. This pace is consistent with the average annual increase of 3.6% between 2010 and 2019, before the pandemic. Americans increased their spending during the pandemic as they had more money in their pockets thanks to federal relief checks and had nowhere to go during business shutdowns. For the 2021 holiday season, sales increased by 12.7% over a two-month period.
Many retailers had already ordered less merchandise for the holiday season and moved Christmas sales earlier into October than last year to help shoppers spread out their spending. Anticipation of purchases appears to be a trend that grew stronger during the pandemic, when 2021’s supply network congestion prompted people to buy earlier for fear of not getting what they wanted.
However, retailers said many shoppers will focus more on bargains and likely wait until the last minute. Best Buy said it was offering more items at opening prices, while Kohl’s simplified its deals, promoting items below a certain price threshold, such as US$25, in its stores.
Online discounts are expected to be deeper than a year ago, especially for toys, electronics and clothing, according to Adobe Analytics, which tracks online spending. The company expects toys to be 35% off on average, up from 22% a year ago, while electronics are expected to be 30% off, up from 27% last year. In apparel, shoppers will receive an average discount of 25%, up from 19% last year, according to Adobe.
Analysts consider the five-day weekend of Black Friday — which includes the Monday following the holiday, known as Cyber Monday — as a key barometer of shoppers’ willingness to spend. According to Sensormatic Solutions, a company that tracks store traffic, Black Friday is once again expected to be the busiest shopping day of the year. On average, the ten busiest shopping days in the United States are again expected to account for about 40% of all holiday traffic, according to Sensormatic.
Stores have multiplied offers such as “ Black Friday » throughout the month, which helped to revive activity.
Adobe Analytics reported that from November 1 through last Monday, consumers spent US$63.2 billion online, up 5% from a year earlier and above its estimate of 4. 8% for the two-month end-of-year holiday period.
However, Marshal Cohen, chief retail advisor at Circana, a market research firm, believes consumers will stick to a list and not buy on impulse. He also thinks they will take their time purchasing throughout the season.
“There is no sense of urgency,” Mr. Cohen said. Consumers say: “I will shop when it is convenient for me.” »