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Bevy of Data Paints Paltry Picture for Holiday Sales

When it comes to consumer spending at retail, it’s hard to find good news these days.

The latest pessimistic prognosis comes from Cowen & Co.’s retail analyst John Kernan, who said on Monday that trends across “discretionary spending are weakening.”

Kernan noted that inventories are at peak levels and rising foreign exchange risk suggests that gross margin estimates might be too high. He expects guidance cuts during third-quarter earnings calls, which are slated to begin for most retailers and vendors next month.

In a proprietary monthly survey by Cowen, 77 percent of respondents in August said prices for day-to-day purchases are up versus year-ago levels. “Social events, travel and apparel are the top three areas that consumers anticipate spending a smaller share of their wallets on in our survey,” Kernan said. “We see downside risk to the industry’s holiday sales projections.”

Kernan explained that gross margin expectations into 2023 are “too high,” especially with increases in markdown allowances and storage costs. The analyst said that NIke’s 150 basis-point increase in markdown pressure one quarter into the firm’s calendar fiscal year is “indicative of a fragile environment.” He also said that e-commerce traffic is “broadly moderating across the consumer ecosystem and within softlines retail.”

Even the luxury market might not be immune to inflationary pressures. A research note from UBS retail and softlines analyst Jay Sole on Monday said that the luxe segment has “good momentum now,” but that many believe “falling asset prices could have a negative effect on luxury consumers’ willingness to spend.” Basically, if the stock market sees additional declines, luxury spending will probably slow. The dressy category—focusing on social events and men’s tailored apparel—isn’t expected to maintain current momentum into 2023, and sales trends will likely weaken over the next few quarters.

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Deloitte is projecting holiday sales this year to rise between 4 percent and 6 percent, totaling between $1.45 trillion to $1.47 trillion during the November-to-January time frame. E-commerce sales are expected to increase by 12.8 percent to 14.3 percent, year-over-year, reaching between $260 billion and $264 billion. Meanwhile, AlixPartners is forecasting a “tepid 4 percent to 7 percent” increase in U.S. holiday sales this year. According to Joel Bines, global co-head of the retail practice at AlixPartners, the consumer is worried about inflation and the possibility of a recession.

Both forecasts are a change from Holiday 2021, which saw sales grow 14.1 percent to a record $886.7 billion, according to the National Retail Federation (NRF), a U.S. retail trade group.

Last week, The Conference Board said its Consumer Confidence Index rose to 108 in September, up from 103.6 in August and representing an increase for the second consecutive month.

While Lynn Franco, The Conference Board’s senior director of economic indicators, said confidence was boosted by the jobs market and a decline in gas prices, she also noted that purchasing intentions were mixed in September. Consumers said they intended to buy automobiles and big-ticket appliances, but spend less on home purchases as mortgage rates rise. And while confidence could hold steady for the balance of 2022, Franco noted that “inflation and interest-rate hikes remain strong headwinds to growth in the short term.”

Jack Kleinhentz, NRF’s chief economist, said on Monday that despite worries about the possibility of a recession, consumer spending continues to grow and many economists believe that even if there will be a recession, it will most likely be a mild one.

“Consumers have become cautious—but they have not stopped spending,” Kleinhenz said. “Growth is not as high as last year, but households continue to spend each month as more jobs, wage growth and savings backstop their finances and help them confront higher prices.”

For now, a decline in prices at the pump has helped consumers weather the increase.

Last month, The Commerce Department said higher prices resulting from inflation helped give U.S. retail sales a 0.3 percent uptick in August to $683.3 billion. The Commerce Department figures, however, aren’t adjusted for inflation. Adjusting for inflation, retail sales have been essentially flat for the past year.

Many consumers are relying on savings to help offset higher prices, but that reliance can go only so far.

U.S. household debt passed the $16 trillion mark in the second quarter of 2022, according to an August report from the Federal Reserve Bank of New York. Of the $16 trillion, $890 billion is attributed to credit card balances. The report also noted that while the credit card delinquency rate remains at near historic lows, they are rising among those in the sub-prime and low-income brackets.

As for holiday, new data from Jungle Scout’s Q3 Consumer Trends Report indicates that 55 percent of respondents have altered their gifting and spending plans due to inflationary pressures, with 28 percent of consumers having started their hunt for holiday gifts before September. Consumers are also finding ways to reduce their holiday spending. Fifty-four percent said they will spend less per person on gifts, while 47 percent will rely on buying discounted products. Thirty-eight percent said they will reduce the number gift recipients, and 36 percent plan to reduce their holiday decorating. Another 25 percent plan to buy used or thrift store gifts, while 21 percent said they will either re-gift presents or recycle gifts.

Respondents of the Jungle Scout study said they will they will mostly likely skip self-gifting to cut costs, while children and grandchildren are the ones least likely to get cut.

Anxiety about financial security looms large, with three-quarters of respondents saying they believe the country is in a recession, or headed there. A near-equal number have already cut, or “steadied,” their overall household spending in response to fiscal headwinds. The vast majority (84 percent) said inflation has impacted their consumption of products and services, up 9 percent from Q2. Almost all survey-takers (90 percent) said they’ve noticed higher prices at retail, and 76 percent are making fewer “fun” or impulse purchases as a result. In fact, more than half (52 percent) of respondents now describe their household income as unstable, up 14 percent from this spring.

“There are a lot of major behavioral changes that are occurring in the marketplace because inflation is so high right now,” Jungle Scout chief marketing officer Mike Scheschuk told Sourcing Journal. He pointed to the remarkable uptick in consumers saying they would search the secondary market, like thrift stores or peer-to-peer marketplaces, for gifts. “We’ve seen interest [in secondhand] creeping up” in recent months, Scheschuk said. Consumers surveyed in Jungle Scout’s report from the same period last year did not include thrifting or secondhand shopping as viable channels for holiday spending, this year those options reached 25 percent popularity.

Despite widespread worry, shoppers still intend to lean into the season for giving, with nearly one-third saying they have already started holiday shopping. Scheschuk explained that starting early gives shoppers more time to hunt for deals, which they don’t expect to find at Thanksgiving week sales this year. Just 13 percent of respondents said they plan to wait until Black Friday and Cyber Monday to scour the web, or the stores, for gifts.

The growing affinity for secondhand steals has even impacted the way shoppers are browsing their favorite online marketplace. Amazon is a predictable first stop for 63 percent of those searching for products online, and the e-tailers “has an entire section of their website, Amazon Warehouse, which carries pre-owned, open-box products,” from Insta Pots to pet beds, Scheschuk said.

Scheschuk believes consumers’ current anxieties could have major ramifications for retail beyond the fourth quarter. “Anytime that you have half of the American population saying that they’re concerned about the amount of money that they’re spending in the holiday season, and saying that they’re going to spend less, it could have major implications across the retail and e-commerce supply chains.”

Some retailers have stayed close to consumer trends as they try to grab holiday market share. Macy’s Inc. and Target Corp. are banking on toys to attract millennial and Gen Z customers to their stores, adding shop-in-shops via Toys “R” Us and FAO Schwarz partnerships, respectively. Target also will kick-start its Deal Days on Thursday for holiday savings, while Amazon is set to host a second “Prime Day” event beginning next Tuesday.