Spending — With August hitting the halfway line, September is closer on the horizon, signifying the earliest signs of the holiday sales. Although it is typically the best time to start shopping early, the health of the economy has created a problem that could affect consumers’ spending habits.
According to early forecasts of this year’s holiday sales, shoppers might have to be more cautious of their spending habits, with little to no choice but to spend less. Despite still being August, many are keeping an eye out on how the upcoming holiday shopping season will play out.
The last two months of the year
November and December are usually dominated by shoppers roaming from one store to another in search of deals and discounts on gift purchases. They serve as a good barometer of the consumer’s spending powers.
For retailers, the last two months of the year are also critical as they account for a fifth of their annual sales.
With retailers preparing for the crucial fourth quarter that usually makes them profitable for a whole, an estimate emerged saying that retailers won’t be having blowout holiday sales this year. Regardless, they are still expected to see sales improve from last year.
“We are cautiously optimistic about the holiday season,” said Coresight Research senior retail/technology analyst John Harmon.
Coresight is projecting the 2023 year-end holiday sales for October through December to go higher by low single digits from 2022.
According to the National Retail Federation, holiday sales in 2022 went up by 5.3% for November and December combined compared to the previous period. However, the numbers don’t mean the year is set for a historical low. Instead, it should be viewed as the United States emerging from years of abnormal economic activities.
As per Harmon, the forecasts for 2023 are dependent on good years of strong holiday sales growth, challenges in making comparisons, and estimating how soon holiday spending could occur.
“The patterns of holiday spending have changed,” said Harmon. “It doesn’t all happen all in the fourth quarter these days.”
Harmon’s comments made a callback to 2021 when retailers like Amazon and Walmart were wary of consumer demand due to the pandemic, kicking off holiday sales earlier around October. A similar pattern was repeated in 2022, stretching the holiday sales season.
For example, last week, Home Depot announced that it started rolling out holiday-themed products online. The retailer shared that it used the same pattern from recent years to boost sales on festive items after noticing early customer demand, namely for holiday merchandise.
However, Harmon also noted that US retail sales are slowing.
“There are pluses and minuses for the consumer,” he said.
To illustrate his point, hourly wages are up year-over-year for US consumers, but the employment rate remains low. As a result, any benefits a household could gain are still counteracted by several factors. According to Coresight, the factors includes persistent (yet easing) inflation on things like:
- Interest-rate hikes
- Slowing housing market
- Resumption of student loan repayments
“The savings rate has gone down and it’s a concern that consumer debt levels have gone up,” said Harmon.
In addition, Americans’ credit card debt levels hit new heights recently. According to data from the Federal Reserve Bank of New York, credit card debt surpassed $1 trillion for the first time ever.
Shopper and spending resilience
Although there have been several overhangs, John Harmon said shoppers continue to exhibit resilience as they continue shopping for necessities, discretionary products, and services.
“So far, consumers really seem to have the desire, will, and ability to keep spending,” he said.
“Barring any cataclysmic event, things seem to be moving in that direction and we don’t foresee a huge risk to holiday spending.”
Back-to-school sales trends in 2023 are supportive of this sentiment. A recent S&P Global Market Intelligence report shows that school-related merchandise sales in 2023 are expected to increase by 1.5% as inflation rate on back-to-school retail sales eased from 5.9% in 2022 to 0.3% in 2023. The report also noted how increasing salary has helped continued spending.
Circana’s Marshal Cohen is anticipating shoppers will continue spending on gifts in a reduced manner.
“The good news is there will be pent up demand on the gifting side of the equation,” he said.
“Spending on essentials, and a lot less on discretionary products, means we have a lot of catching up to do by holiday time and a long list of desires to share with those giving gifts.”
Cohen also said the 2023 holiday shopping period could reflect 2022, with late October witnessing a small start, Cyber Monday going slow, improving on Black Friday, and hitting a long delay until the last two weeks before the holidays.
“Consumers are in no rush to spend, and a lack of inspiration with so few new and exciting items makes for a ho-hum holiday at retail,” Cohen noted.