Wall Street Times

Retailers prepare for more budget-sensitive consumers in 2023

For many retailers in the market, January is a critical month that marks the closing of their fiscal year. However, market experts say that retailers should be more cautious this month as there will be a pragmatic shift in how buyers will spend their money.

Normally, buyers carry gift cards going into the stores this January. That is also when retailers shell out all of their inventory to prepare for new items going into the store for the subsequent fiscal year. January would also be a tipping point for the economy, as many analysts expect a recession to happen any sooner.

However, retailers and market experts have expressed happiness over the better-than-expected holiday results. Months ago, market stakeholders feared a slower and weaker buying activity over the holidays.

According to MasterCard SpendingPulse, market sales climbed 7.6% from November 1 to December 24. Meanwhile, restaurant sales also saw a yearly increase of 7.1% in November, marking a better mood for business owners and other market specialists. However, despite the light mood, analysts say this may not last long.

For instance, individuals’ credit cards have been maxed, which could indicate a stoppage of purchases for several months. Moreover, people’s savings have also been depleted owing to the purchases buyers have made over the holidays.

Several retailers, including Best Buy, Target, Walmart, Kohl’s, Macy’s, and Nordstrom, reported that foot traffic within their establishments has also dwindled by around 3.22% year-over-year in the weeks from Black Friday to Christmas. Compared to the pre-pandemic period, the current rate is 5% less. This trend instills fear among retailers.

“It seems like a lot of the brands are anticipating a bigger thud in January,” noted SW Retail Advisors president Stacey Widlitz.

Widlitz explained that many retailers have opted to offer more gift cards to their customers to rake in more sales during the holidays. For example, retailer Urban Outfitter offered 50$ for buyers who spent 200$ or more.

She said that many businesses use this strategy to encourage customers to pay because they have been experiencing a slump for several months. On the contrary, other retailers, like Walmart, expect a boost in sales in the face of more budget-sensitive consumers.

“Sometimes these quarters work out where the very end of December and January end up being stronger when people are particularly price sensitive. So that’s kind of what I’m expecting,” said Walmart CEO Doug McMillon.

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The New Year for retailers

As 2023 comes, economists are keeping tabs on consumer indicators. By doing so, data and other observations could help retailers make administrative decisions that could boost their sales or prevent massive losses.

In addition, since the Feds will continue its aggression against inflation, interest rates are expected to rise. If the Feds successfully stave off inflation, it could mean well for the prices of goods and services. Back in early December, federal data revealed that the increase in prices was lesser than they had expected.

“Cooling inflation will boost the markets and take pressure off the Fed for raising rates, but most importantly, this spells real relief starting for Americans whose finances have been punished by higher prices. This is especially true for lower-income Americans who are disproportionately hurt by inflation,” explained Navy Federal Credit Union corporate economist Robert Frick.

“The Fed could dismiss the better-than-expected October as just one month’s data, but the further slowdown in November makes this new disinflationary trend harder to dismiss,” added economist Paul Ashworth.

But since the fight against inflation remains to be seen, retailers and consumers still fear the fluctuation of prices in the market. Food prices are still higher than they were years ago, and gas prices have been wild in light of the global shortage. Moreover, according to Widlitz, consumers need to be wary of their spending patterns because high credits should be registered to their cards soon.

“Everyone gets through the holidays in denial, and February 1, when you get your [credit card] statement, or January 15, whenever it comes, it’s like, ‘Oh!'”

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Holiday spending is high

Over the holidays, from Black Friday to the New Year, retailers were surprised by the volume of people shopping. Of course, retailers have been expecting less. However, they were proven wrong after a flock marched into business establishments to buy what they needed for the holidays. The highest turnout was the GenZs.

“One standout this Black Friday was the high turnout of Gen Z in stores. Younger consumers flooded the mall, treating Black Friday as a social event. They came early, they came with friends, and they came to shop,” said economist Kristen Classi-Zummo.

“Over Black Friday weekend, we saw shoppers of all ages but certainly saw a strong showing from a youthful crowd, and some of our strongest anecdotal sales reports came from top Gen Z brands and fashion department stores,” said Joe Coradino, CEO of PREIT, a mall operator.

“Promotions aren’t the draw for these shoppers. Instead, one in three shoppers aged 18 to 24 looks at social media first to do their shopping research,” added Classi Zummo.

“At the same time, this generation is also open to finding inspiration in other channels, including browsing in stores. And we saw that over Black Friday. So they will get the must-haves on their wish list, regardless of price, and maybe put back the nice-to-have items.”

“Mostly beauty items and electronics. Their top retailers were Best Buy, Sephora, Ulta and TJ Maxx. Gen Z and their spending, by and large, are all discretionary. They aren’t burdened as much by bills, so they’re not thinking as much about inflation and prices,” said Brian Mandelbaum, CEO of a consumer data company.

Photo Credit: Gabriela Bhaskar for The New York Times

Source: CNBC