The start of the Black Friday holiday shopping season is expected to bring especially steep discounts in 2022, but one challenge will be finding consumers confident enough to spend.
Crushing inflation in the world’s largest economy in recent months has thrown uncertainty over this year’s holiday season, which kicks off the day after the Thanksgiving holiday on Thursday.
A year ago, retailers faced product shortages following a COVID-19-related shipment backlog and factory closures. To avoid a repeat, the industry has brought imports forward during the holidays this year, making it vulnerable to oversupply at a time when consumers are cutting back.
“Supply shortages were yesterday’s problem,” said Neil Saunders, managing director of GlobalData Retail, a consultancy firm. “Today’s problem is having too many things.”
Saunders said retailers have made progress in recent months in reducing excess inventory, but that oversupply has created exceptional conditions for bargain hunters in many categories, including electronics, home improvement and apparel.
Juameelah Henderson always monitors the sales, “but even more so now,” he said as he walked out of an Old Navy store in New York with four bags of the items.
The clothing chain’s prices were “pretty good,” she said. “If it’s not for sale, I really don’t need it.”
Higher costs for petrol and staples like meat and grains are an economic problem, but they don’t burden everyone equally.
“Lower incomes are definitely the hardest hit by higher inflation,” said Claire Li, a senior analyst at Moody’s. “People have to spend on essential items.”
– Decrease in savings –
Leading forecasts from Deloitte and the National Retail Federation call for a single-digit percentage increase, but it likely won’t exceed the inflation rate.
The consumer price index is up about 8% year over year, meaning a similarly sized increase in holiday sales would equate to lower volumes.
US shoppers have remained resilient through countless phases of the Covid-19 pandemic, often spending more than expected, even when consumer confidence surveys suggest they’re in a somber mood.
Part of the reason was the unusually robust state of savings, with many pandemic government relief payments by households banking at a time of reduced consumption due to Covid-19 restrictions.
But that pillow is starting to fall apart. After reaching $2.5 trillion in excess savings in mid-2021, the benchmark fell to $1.7 trillion in the second quarter, according to Moody’s.
Consumers with incomes below $35,000 were hardest hit, with their excess savings declining nearly 39 percent between the fourth quarter of 2021 and mid-2022, according to Moody’s.
Accompanying this decline has been a rise in credit card debt visible in Federal Reserve data and anecdotally described by chains who also report more purchases made with food stamps.
“We’re seeing continued pressure,” said Michael Witynski, chief executive officer of Dollar Tree, a discount retailer that has seen “changes” in shoppers, “where they’re very consumable and needs-focused to try and make that budget work and stretch it.” during the month.”
– Mixed Image –
Earnings reports from retailers in recent days have painted a mixed picture about consumer health.
Target was on the bearish side of the ledger, pointing to a sharp decline in buying activity in late October, which could portend a weak holiday season.
The big-box chain is expecting a “very promotional” holiday season, Chief Executive Officer Brian Cornell said.
“We had a consumer dealing with very stubborn inflation for quarter after quarter,” Cornell said on a conference call with analysts.
“They’re buying very carefully on a budget, and I think they’re looking at discretionary categories and saying, ‘Okay, if I’m going to buy, I’m looking for a great deal and great value.’ “
But Lowe’s, another major American chain specializing in home improvement, offered a very different view, describing the same late-October period as “strong” and seeing no signs of deteriorating consumption.
“We are not seeing anything that looks or resembles a consumer trade down or recall,” said Lowe’s Chief Executive Officer Marvin Ellison.
Consumers like Charmaine Taylor, who check airline websites frequently, remain vigilant
Taylor has so far been hampered in her travel aspirations due to exorbitant airline ticket prices. Taylor, who works in childcare, isn’t sure how much she will be able to spend on family this year
“I’m trying to get them little presents,” Taylor said at a Harlem park earlier this week. “I don’t know if I’ll be able to do that. Inflation is hitting pretty hard.”