Spending — As August ends, September will welcome the first hints of Christmas shopping. Although it is usually better to begin shopping early, the present state of the economy has created a conundrum that may influence people’s spending patterns.
Customers will be forced to be more careful with their purchases this year, according to early projections for Christmas spending, with little to no choice but to spend less. Despite the fact that it is only August, many people are already anticipating the next Christmas spending season.
The last two months of the year
Customers who go from store to store looking for deals and discounts on holiday gifts often dominate November and December. They are an excellent indicator of consumer spending power.
The last two months of the year are crucial for retailers since they account for one-fifth of total annual sales.
As retailers prepare for the key fourth quarter, which usually results in overall profitability, one estimate suggests that this year’s Christmas sales may be lower than in previous years. Regardless, sales are likely to increase over last 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 to December 2023 will increase by the low single digits compared to 2022.
As per the National Retail Federation, holiday sales in November and December will increase by 5.3% in 2022 compared to the previous year. However, the numbers do not indicate that the year is on track to hit a new low. Instead, it should be understood as the United States emerging from an unprecedented period of economic activity.
According to Harmon, estimates for 2023 are based on excellent years of significant holiday sales growth, the difficulty of drawing parallels, and projecting how soon holiday spending may begin.
“The patterns of holiday spending have changed,” said Harmon. “It doesn’t all happen all in the fourth quarter these days.”
Harmon’s statements reminded me of 2021, when businesses such as Amazon and Walmart had reservations about customer demand due to the pandemic, pushing them to begin Christmas shopping in October. In 2022, a similar trend was replicated, extending the Christmas shopping season.
For example, Home Depot said last week that it will begin selling holiday-themed things online. Following early customer interest in Christmas products, the company stated that it employed the same strategy as in previous years to enhance holiday merchandise sales.
Harmon, on the other hand, highlighted the fact that retail sales in the United States are declining.
“There are pluses and minuses for the consumer,” he said.
To support his claim, despite low labor-force participation, hourly salaries in the United States continue to rise year after year. As a result, any gains achieved by a household are offset by a number of variables. According to Coresight, one of the challenges is chronic (albeit falling) 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.
In addition, credit card debt in the United States has reached new highs. Credit card debt has reached $1 trillion for the first time, according to the Federal Reserve Bank of New York.
Shopper and spending resilience
Customers, according to John Harmon, continue to show resilience as they purchase basics, discretionary items, and services in the face of various headwinds.
“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 back this up. School-related goods sales are predicted to rise 1.5% in 2023, while back-to-school retail sales inflation is expected to fall from 5.9% in 2022 to 0.3% in 2023, according to S&P Global Market Intelligence. Higher incomes, according to the report, have also helped to keep spending in check.
Marshal Cohen of Circana thinks that buyers will continue spending less on gifts.
“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 holiday season in 2023 will be similar to the one in 2022, with a slow start in late October, Cyber Monday surpassing Black Friday, and a significant wait until the final 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.