Holiday Sales Outlook: Deal-Hungry Shoppers Set to Limit Growth to Pre-Pandemic Levels, Retail Group Warns

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Business / Wednesday, 08 November 2023 10:15

"Holiday Sales Forecast: Shoppers' Pursuit of Deals to Restrain Growth, National Retail Federation Warns"

Anticipated to spend more this holiday season, shoppers' relentless pursuit of value and preference for deals may curtail overall growth, returning it to pre-pandemic levels, warns the National Retail Federation (NRF). The influential trade group projects a modest year-over-year sales increase of 3% to 4% in November and December, amounting to a spending range of $957.3 billion to $966.6 billion throughout the festive shopping period. Notably, the NRF's forecast excludes spending at automobile dealers, gasoline stations, and restaurants.

Historically, holiday sales have averaged a 5% year-over-year growth over the past decade. The pandemic saw a spike in sales, surging by 9.3% in 2020 and 13.5% in 2021. However, before this pandemic-induced surge, the average growth from 2010 to 2019 was 3.6%, notes NRF Chief Economist Jack Kleinhenz.

This forecast arrives amid conflicting economic factors, including low unemployment, cooling inflation, dwindling savings accounts, and rising costs in mortgages and credit cards. The inflation rate, standing at 3.7% as of September, prompts considerations about the actual impact on holiday spending.

Despite cooling inflation, the costs of gift-giving items and food have risen. The NRF's holiday forecast doesn't account for inflation adjustments, potentially indicating that the actual sales gains might be more modest. Kleinhenz, however, asserts the forecast anticipates genuine growth, noting that, based on the personal consumption expenditures price index, inflation for retail and food services is up only 1.3% year over year. When excluding gas and food services, prices are half a percent to 1% higher than a year ago.

Acknowledging the challenges posed by elevated prices, higher interest rates, and geopolitical uncertainties, NRF Chief Executive Matt Shay remains cautiously optimistic. He suggests that the combination of increased wages, job security, and consumer confidence may drive spending on gifts and decorations. However, Shay concedes the potential for a moderation in consumer behavior compared to the heightened spending observed in recent holiday seasons.

"Holiday Expectations: Retail Giants Exercise Caution Amid NRF's Sales Growth Forecast"

While the National Retail Federation (NRF) anticipates holiday sales growth of 3% to 4%, major retailers such as Target and Macy's are adopting a more cautious stance, reflecting a shift in consumer behavior. Instead of hyping the season, companies are placing smaller merchandise orders and emphasizing value in their marketing strategies, including circulars, TV ads, and in-store signage. Target CEO Brian Cornell noted a trend of consumers not only spending less on discretionary purchases but also reducing grocery purchases as the peak shopping season approaches.

Quarterly earnings reports from retail giants like Target, Walmart, and Home Depot in mid-November will provide further insights into sales trends and outlooks. Last year's holiday season saw a 5.3% increase in retail sales compared to 2021, falling short of the NRF's forecasted 6% to 8% growth due to factors like inflation and higher interest rates.

The NRF's latest consumer survey indicates that while consumers plan to spend more this year, they are also vigilant about finding deals. The average budget for holiday items is expected to be $875, a $42 increase from the previous year and consistent with average holiday budgets over the past five years. Sales and promotions hold greater importance for nearly two-thirds of respondents, with nearly 40% stating that they are cutting back in other areas to accommodate holiday expenses.

As retailers navigate this dynamic landscape, the cautious approach underscores the impact of economic uncertainties on consumer behavior. The holiday season will likely witness a delicate balance between increased spending intentions and the continued pursuit of value by deal-seeking shoppers, shaping the retail landscape for the months ahead.

"As the holiday season approaches, the retail landscape reflects a nuanced picture of consumer behavior, with the National Retail Federation (NRF) anticipating modest sales growth of 3% to 4%. However, major retailers such as Target and Macy's are adopting a cautious approach, emphasizing value and placing smaller merchandise orders. This divergence in expectations highlights the evolving dynamics of consumer spending patterns.

The caution exercised by retailers comes amidst economic uncertainties, including inflation, higher interest rates, and shifting consumer priorities. While the NRF's forecast suggests an overall increase in holiday spending, retailers are keenly attuned to consumers' dual focus on spending more while actively seeking deals. The upcoming quarterly earnings reports from retail giants will offer additional insights into the industry's performance and consumer sentiments.

The NRF's consumer survey underscores the delicate balance consumers are striking this holiday season. Despite planning to spend more, shoppers are prioritizing sales and promotions, with nearly 40% adjusting their spending in other areas to accommodate holiday expenses. This nuanced approach suggests that while optimism exists, consumers remain pragmatic and value-conscious in their holiday shopping endeavors.

As the retail landscape navigates these complexities, the forthcoming holiday season will likely be characterized by a blend of increased spending intentions and a persistent pursuit of value. Retailers will need to adapt to this nuanced consumer mindset, ensuring that their strategies align with the evolving expectations and preferences shaping this critical shopping period."