Black Friday is almost here and online spending seems to be holding up as retail heads into the official kickoff of a closely watched holiday season.
The industry’s attempts at jumpstarting the peak season seem to be paying off with Nov. 1-21 e-commerce spending coming in flat year-over-year at $64.59 billion, according to new Adobe Analytics data reported Wednesday. The modest 0.1 percent uptick suggests people are responding to deals and promotions earlier in the calendar, which could take some of the pressure off Black Friday. The National Retail Federation (NRF) expects November-December online holiday sales will rise 10 percent to 12 percent to $262 billion and $267 billion, up from $238 billion last year, while S&P Global Market Intelligence expects e-commerce will command one-quarter of all holiday spending.
“We are beginning to see the impact of earlier holiday deals, as retailers contend with oversupply and a softening spending environment,” Vivek Pandya, Adobe Digital Insights’ lead analyst, said, pointing to “resilient” online spending. He went on to note the season’s “strong start” ahead of Cyber Monday, “which is expected to set new records for online shopping.”
Adobe expects online prices in many categories will fall over the Thanksgiving-through-Cyber Monday frame. It sees “deeper discounts” ahead for apparel, sporting goods, and furniture, where prices to date reflect just moderate markdowns at 12 percent, 8 percent and 4 percent off, respectively.
The overarching theme of 2022—inflation—could create a perfect storm for a buy now, pay later (BNPL) holiday. More people are turning to BNPL options to make the most of their finances, according to the digital retail specialist, which found a 13 percent year-on-year increase in consumers using these services.
“We do know that consumers are looking for discounts and looking for deals for value stretch their dollars in the face of higher energy prices, housing prices. So we know that they’re looking for those opportunities,” NRF president and CEO Matthew Shay said at a press briefing earlier this month. “And we think that that’s going to continue for the holiday season. They’re going to be looking for more bargains and values as the holiday season begins in earnest.”
In fact, research by installment payment platform Afterpay found that one in six U.S. consumers plans to use BNPL in order to afford their gift-giving plans. Another 25 percent say high prices are making them search for more affordable alternatives, according to the Klarna rival’s 2022 Festive Forecast, which polled 1,500 consumers plus another 500 millennials and Gen Zers in August and September about their holiday shopping outlook.
Research from consumer insights provider Toluna further underscores the consumer obsession with cost-cutting this season. On top of the 45 percent of consumers it polled who say they’ll buy more items on sale or at a discount this holiday, another 41 percent simply isn’t planning to purchase as much as they did last year. People are also trying to make their dollar stretch by using more coupons (37 percent), switching to cheaper brands (31 percent), spending less to manage their more expensive cost-of-living bills (28 percent) and shopping with a different merchant where prices are lower (20 percent). Voxware’s survey says 56 percent of the consumers it polled blamed inflation for their reined-in holiday purchasing plans.
Data suggests this trend has been building since the earliest weeks of the pre-holiday season.
In a 2,000-plus U.S. shopper survey last month, Numerator found that 93 percent plan to seek out additional promotions and sales (49 percent), buy less expensive (43 percent) or fewer (38 percent) gifts, and cut recipients from their shopping lists (22 percent). Two-thirds, or 66 percent, cited inflation as a dominant factor in their holiday decision-making.
“Finances are the top concern among holiday shoppers, with many concerned about their ability to afford gifts this year in light of rising prices and tighter budgets,” Numerator said, noting the 28 percent who said they would spend less than they have in years past.
LendingClub also found that 15 million consumers who shopped for holiday gifts last year are opting out in 2022.
“More consumers who have historically managed their budgets comfortably are feeling the financial strain, which will impact their spending behavior as we head into the holiday shopping season,” LendingClub financial health officer Anuj Nayar wrote, adding that average monthly household expenses have gone up $445. “That’ll leave less available cash and, if this trend continues, we’ll see more U.S. consumers exercise caution before spending on gifts and entertainment this holiday season.”
LendingClub also documented an increase in people getting creative with their finances to afford the holiday season. Nearly 40 percent of consumers plan to use financing via credit cards, personal loans and BNPL for their seasonal spending.
Meanwhile, Mastercard SpendingPulse projects shoppers will increase their spend by 15 percent across all forms of payment on Black Friday.
“In October we saw the strength in the labor market continue to support consumer purchasing power,” said Michelle Meyer, U.S. chief economist at the Mastercard Economics Institute. “Coupled with heavy online promotions, consumers got a head start on their holiday shopping, fueling another strong month of retail sales.” October retail sales grew 9.5 percent from the year prior and over 23 percent from pre-pandemic 2019, while e-commerce sales came in more than 12 percent over last year.
“While retailers have already been heavily discounting this season, consumers and retailers are likely holding out for some special offers to land on the biggest promotional day of the year,” Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks Incorporated, said. Physical retail is expected to win out during Thanksgiving week, with 18 percent more projected sales than 2021. Department stores may also see a “comeback,” with Mastercard SpendingPulse predicting 25 percent higher sales year over year. “Expect Black Friday shopping to be in full force across channels this year,” Sadove said.
Still, the holiday might not see the kind of growth retail has enjoyed in years past.
S&P Global Ratings credit analysts projects retail sales growth could come in as low as 4.5 percent, in the same general ballpark as NRF’s 6 to 8 percent outlook of $942.6 billion to $960.4 billion and Coresight Research’s estimate of 6 percent.
“Adjusted for inflation, we expect holiday sales to contract as consumers allocate more of their budgets to essentials like food and gas,” according to S&P credit analyst Sarah Wyeth.
Wyeth pointed out that people worried about a recession are changing their behavior. “The tightening of budgets has gained momentum since it first emerged in the spring and we expect it to continue through the holidays and into 2023 when we expect a shallow recession in the first half,” she said. “Now that consumers are bracing for a recession, peak seasonal discretionary spending during the holidays is at increasing risk.”
However, NRF chief economist Jack Kleinhenz said the third quarter’s 2.6 percent U.S. GDP improvement “should override any concern at this time that the economy’s in a recession.”
“And we expect the economy to continue to grow through the remainder of 2022, but at a slower pace than what we saw in the third quarter,” he added.
Still, suppliers and merchants alike could be in for a rocky road, Wyeth said. “Weak volumes and persistent cost inflation will negatively affect credit quality of retailers most exposed to holiday shopping, along with their suppliers of discretionary categories such as durables, household products, apparel and durables,” she added.
High-end shoppers might be holding up better than less affluent consumers but even they seem to be tightening their belts a bit.
Though the well-heeled are well positioned to spend this season, fewer (76 percent) plan to shell out as much as they did last year (79 percent), according to the Saks Luxury Pulse survey. Three percent fewer than the 68 percent a year ago said they’ll start shopping before Thanksgiving, while the decline in those who say they’ll mostly rely on e-commerce for their needs (43 percent versus 50 percent a year ago) reflects the resurgence of the in-store experience after two pandemic-disrupted holidays.
“Despite an evolving economic environment, we’re pleased to see luxury consumers’ enthusiasm for shopping this holiday season, both for themselves and others,” said Marc Metrick, CEO of luxury retailer Saks, which surveyed 2,376 U.S. respondents between Sept. 16-19 to compile the findings. “As our customers go out, travel and celebrate the holiday season, we expect them to take advantage of opportunities for self purchasing in addition to luxury gifting. We are confident they will turn to Saks for these occasions and are ready to deliver the best in fashion and lifestyle merchandise.”
Nearly two-thirds, or 61 percent, plan to acquire new clothing for the season, up from 45 percent a year ago, with more people (32 percent versus 16 percent last year) saying they’ll be decked out in formal attire this holiday, according to Saks. Hosting or attending (or both) a holiday party is on the agenda for about half, while vacationing at a tropical or ski destination is in the cards for 27 percent.
Holiday gifting plans hew closely to tradition. Gift cards lead with 69 percent planning to give one to a recipient, while 64 percent will buy apparel. Clothing was cited as the most-wanted gift (48 percent), while 33 percent apiece want to receive beauty and fragrance gifts as well as wine and spirits. People were interested in buying themselves shoes (39 percent), handbags (28 percent) and beauty and fragrance items (27 percent).
Though retail has been plagued by a surge in shoplifting and theft at physical stores, fraud is “hounding e-commerce companies this holiday season,” according to Signifyd, which found a 69 percent year-on-year rise in fraud pressure and “consumer abuse” last month. That compares with October’s 35 percent comparable increase in the same activity, suggesting “fraudsters too were biding time until the shopping levels started to ramp up,” the digital fraud protection platform noted.
The Lord & Taylor partner documented a “significant shift in chargeback activity” this month, with more reverse charges attributed to criminal fraud activity versus “so-called friendly fraud” or claims related to poor buyer experience, it wrote in its Holiday Season Pulse Tracker.
Some people are turning to resale to find budget-friendly gifts.
ThredUp teamed with Brooklyn designer Zero Waste Daniel on the Full Circle collection of one-of-a-kind clothing, accessories and home goods made from upcycled garments. They tapped “The Nanny” star and ’90s icon Fran Drescher as the face of the collection of scarves, bucket hats, pet beds, scrunchies and more priced at $10 and up.
“Consumers are feeling the effects of record high inflation, and we believe they are looking at prices more closely so this holiday season we wanted to offer not only an affordable and sustainable choice, but also a special, gift-worthy choice that they can feel good about,” ThredUp vice president of integrated marketing Erin Wallace told Sourcing Journal.
ThredUp’s latest recent consumer survey found that nearly three out of four millennials would prefer to give eco-friendly gifts, with 71 percent saying they aim to be less wasteful this holiday season. “That’s why we launched our first-ever upcycled holiday collection, which offers consumers one-of-a-kind giftable items that are not only good for your wallet but also a better choice for the planet,” Wallace said. Seventy-six percent of respondents say they’re looking for more affordable options this year, and 78 percent want to find “special” gifts that don’t break the bank.
Zero Waste Daniel said he was “inspired by ThredUp’s mission and was eager to tackle and challenge industry norms by making the sustainable option affordable.”
“Nowadays, it feels like sustainable is a word people slap on something to make it more expensive,” he added. ThredUp and Zero Waste Daniel upcycled 2,000 pounds worth of unsellable clothing to create the collection, aiming to keep prices low for shoppers while paying garment workers fair wages. “It’s always a challenge to get price point and ethics to align,” he added.