Spending — With August approaching the midway point, September is on the horizon, heralding the first hints of holiday shopping. Although it is usually advisable to begin shopping early, the state of the economy has created a dilemma that may impair customers’ spending patterns.
According to early predictions for this year’s Christmas shopping, buyers may be forced to be more frugal with their spending, with little to no choice but to spend less. Despite the fact that it is still August, many people are anticipating how the approaching holiday shopping season will unfold.
The last two months of the year
November and December are often dominated by customers going from store to store looking for deals and discounts on present purchases. They are an excellent indicator of the consumer’s purchasing power.
The last two months of the year are especially crucial for retailers since they account for one-fifth of their annual sales.
With retailers preparing for the key fourth quarter, which normally results in overall profitability, an estimate has surfaced indicating that merchants will not have blockbuster Christmas sales this year. Regardless, sales are likely to increase over previous year.
“We are cautiously optimistic about the holiday season,” said Coresight Research senior retail/technology analyst John Harmon.
According to Coresight, year-end holiday sales for October through December 2023 will increase by the low single digits compared to 2022.
According to the National Retail Federation, holiday sales in 2022 increased by 5.3% when compared to the previous year for November and December combined. However, the figures do not indicate that the year is on track to hit a new low. It should instead be understood as the United States emerging from years of anomalous economic activity.
According to Harmon, estimates for 2023 are based on good years of significant holiday sales growth, difficulties in drawing comparisons, and projecting how soon holiday spending may commence.
“The patterns of holiday spending have changed,” said Harmon. “It doesn’t all happen all in the fourth quarter these days.”
Harmon’s remarks harkened back to 2021, when merchants including Amazon and Walmart were worried of customer demand due to the epidemic, kicking off Christmas shopping earlier in October. In 2022, a similar trend was replicated, extending the Christmas shopping season.
For example, Home Depot stated last week that it will begin selling holiday-themed merchandise online. The firm said that it utilized the same strategy as in previous years to increase sales of festive products after observing early customer interest, namely for Christmas merchandise.
However, Harmon emphasized that retail sales in the United States are slowing.
“There are pluses and minuses for the consumer,” he said.
To underscore his thesis, hourly salaries in the United States are growing year over year, yet the labor force participation rate remains low. As a result, any gains gained by a household are still offset by a number of variables. According to Coresight, one of the causes is persistent (but lowering) inflation on items such as:
- 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.
Furthermore, Americans’ credit card debt has reached record highs. Credit card debt has reached $1 trillion for the first time, according to figures from the Federal Reserve Bank of New York.
Shopper and spending resilience
Despite various overhangs, customers, according to John Harmon, continue to show resilience as they purchase for essentials, discretionary items, 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 patterns in 2023 support this viewpoint. According to a recent S&P Global Market Intelligence research, school-related product sales are predicted to grow by 1.5% in 2023, as the inflation rate on back-to-school retail sales falls from 5.9% in 2022 to 0.3% in 2023. The study also mentioned how rising wages have aided in the continuation of spending.
Marshal Cohen of Circana predicts that buyers will continue to spend less on presents.
“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 predicted that the 2023 holiday shopping season will mirror that of 2022, with a sluggish start in late October, Cyber Monday improving on Black Friday, and a significant 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.