When it comes to holiday shopping, the big question this year is not if consumers will spend, but where.
Despite the rise in Covid infections from the Delta variant, economists at Wells Fargo are making the case that holiday this year could see consumers choosing bricks over clicks.
“With last-mile shipping struggling to meet deadlines and delivery target dates, in-store shopping might get a reprieve from the shift to e-commerce,” they noted in a research report this week on key themes for holiday this year.
One growing post-pandemic dynamic has been buy online and pick-up in store (BOPIS). “Retailers could boost sales by seeking ways to make it easy to add on to whatever purchase justified the trip in the first place,” the economists noted. The big elephant in the room is the direction of the Delta variant. Wells Fargo believes that even if Covid restrictions impact service sector activity, such as eating at restaurants, “that could free up money for the goods spending, which is key for holiday sales.”
Another key theme for both retailers and shoppers is that they need to start early. Many stores are already coming out with planned promotions. Target this week said it will bring back its three-day holiday Deal Days beginning on Oct. 10, the same day that it starts its price-matching guarantee that will now last all-season long. Previously, the guarantee didn’t start until Nov. 1. Surveys indicate that at least some consumers have already started to think about holiday even before Halloween has past.
The Wells Fargo economists are forecasting that holiday sales in the U.S. could rise 10 to 12 percent this year, based on shopping gains from earlier in 2021 and despite their expectation that third-quarter consumer spending is likely “on track for only a scant gain.” U.S. retail sales for July were adjusted down when August sales data were released last month. Many retail observers believe that July sales were impacted by the Delta surge and August sales were boosted by the federal Child Tax Credit stimulus.
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“Our expectation is that consumer spending will limp across the finish line at the end of this year,” the Wells Fargo team concluded. They explained that given the size of the sales gain earlier this year, how well retailers end 2021 will depend on their ability to hold on to the gains already realized.
And it could very well be that consumers begin their holiday spree sooner than later, leaving little left to do in the countdown to Christmas Day.
UBS softlines retail analyst Jay Sole isn’t ruling out the power of the U.S. consumer. While the Delta variant is weighing on consumer confidence, which retreated for the third month in a row to a seven-month low, Sole said spending data indicates that they haven’t yet pulled back on their purse strings.
And consumers seem intent to celebrate the holidays after last year’s stay-at-home restrictions. Data tracked by UBS shows U.S. consumers plan to increase their Halloween spending by 9 percent year-over-year. For holiday, 41 percent of consumers said celebrating the holidays is more important to them this year versus 8 percent who said they plans to spend less.
“We think Halloween is a good indicator of what U.S. consumers’ spending intentions will look like over the holiday season. We think celebrating events will remain very important,” the analyst said.
Jack Kleinhenz, the chief economist for the National Retail Federation (NRF), a retail trade group, said on Friday that there’s reason to be optimistic about consumers’ propensity to spend on holiday gift-giving.
“If consumer finances are any indication, there’s reason to be optimistic: Households remain in good shape, with consumers in the aggregate actually underspending relative to current income. Even though enhanced unemployment benefits have expired and are no longer providing a boost to personal income, the loss is easily offset by the savings stockpiled since the coronavirus pandemic began,” Kleinhenz said.
In the October issue of NRF’s Monthly Economic Review, the chief economist noted that consumers’ mid-summer savings rate of 9.6 percent was “noticeably” above pre-pandemic levels. He also said that income growth going forward should benefit from expected strong employment gains and higher wages. In addition, Child Tax Credit checks that will be issued in December could also provide a “bump,” he said.
Although the Federal Reserve has attributed a deceleration in economic growth in late summer to a pullback in dining out, travel and tourism as Delta cases rose, the increase in August retail sales contributed to a 15 percent year-over-year gain in retail sales for the first eight months of the year. That puts sales on track to meet NRF’s annual forecast for retail sales to see growth between 10.5 percent and 13.5 percent for the full year, NRF said. The retail trade group hasn’t yet provided its sales guidance for the holiday selling period.