Home Business The Christmas shopping season is expected to be subdued due to high inflation

The Christmas shopping season is expected to be subdued due to high inflation

by SuperiorInvest

Shoppers hold hands at Willow Grove Park Mall in Willow Grove, Pennsylvania, on November 14, 2020.

Mark Makela | Reuters

Retailers are scrambling to prepare for the fast-approaching holiday shopping season, but sales growth is expected to be muted this year as consumers cope with tight budgets.

Many reports say shoppers are likely feeling frugal as they face higher prices for groceries and other necessities. The consumer price index increased by 8.3% over the past year. That’s according to a Tuesday report from the Bureau of Labor Statistics. As a result, holiday sales growth is expected to be largely driven by inflation.

Retailers have already relied heavily on discounters to move excess inventory and clear shelves in time for the holiday shopping season, which typically begins the Black Friday after Thanksgiving. It’s a critical time for retailers and can account for up to 40% of a company’s annual sales.

Here’s what customers and retailers are forecast to expect.

A more muted season

On paper, this year’s holiday sales may appear healthy, with Bain & Co. predicts growth of up to 7.5% compared to last year. But after adjusting for inflation, it expects growth of only 1% to 3%, below its 10-year average.

The modest forecast follows a 14.1% jump over last year’s holiday season, according to the National Retail Federation. The increase was confirmed by shoppers eager to spend their savings as pandemic restrictions eased, even as supply chain bottlenecks slowed supplies.

Now consumers and retailers alike face a grimmer reality. A survey commissioned by Morning Consult for CNBC found that more than half of consumers are either somewhat or very concerned about sticking to their vacation budget, and 80% expect it to be affected by inflation.

The survey also found that 52% of respondents said it will be harder to afford vacation expenses this year than in 2021.

“It’s definitely a transition year,” said Matt Kramer, KPMG’s national head of consumer and retail.

With consumers cautious about spending this year, he said retailers will have to push discounts.

Lots of markdowns

Retailers are expected to continue to lean on promotions, a lever they have grown accustomed to as they try to adapt to changing shopping habits in recent months.

As pandemic restrictions eased and people started going out more, many companies found they had too much inventory of goods that people no longer wanted. This forced them to heavily discount products to clear shelves and make room for the holidays.

In August, Target showed a sharp decline in earnings and lowered the financial outlook after steep descents. Walmart she opted out of the competition with Prime Day in July after being forced to cut prices significantly to move its own stock.

Discounting is expected to continue over the holiday season, with 73% of retail managers telling KPMG that their stores will be more promotional and 21% saying they plan to be “much more” promotional.

Although down slightly from last year, the vast majority of retailers also still expect to participate in Black Friday and Cyber ​​Monday sales.

Online vs. sale in store

According to Mastercard SpendingPulse, holiday shopping could start as early as October as shoppers start hunting for deals early.

The report also predicts that apparel will see the strongest growth as people returning to the office opt for nicer clothes. Executives from Nordstrom and Macy’s noted growing demand for such clothing at Goldman Sachs’ annual global retail conference last week.

Luxury goods sales are also expected to be relatively strong, according to Mastercard SpendingPulse, in line with summer reports of continued strength in spending among higher-income consumers.

According to Mastercard SpendingPulse, in-store sales are expected to rise 7.9% as retailers lean towards thresholds and capitalize on people going shopping again this year. Online sales are expected to increase by 4.2%.

However, the Deloitte report estimates stronger e-commerce growth of between 12.8% and 14.3%, which it attributes to budget-minded consumers going online to find deals and compare prices.

Back to promotions?

Although retailers will see higher sales this holiday season, 92% of executives surveyed by KPMG said they expect a recession in the near future. 81 percent said they believed the recession would last a year or less.

In preparation, 52% of retailers said they would seek to reduce indirect spend, while 42% said they would invest in customer loyalty, reduce direct spend and reduce inventory.

Summer inventory gluts could also come back to haunt retailers, with 56% percent of executives expecting to have excess merchandise after the holidays. This could lead to even bigger discounts.

The concerns are in stark contrast to the 2021 holiday season, which was marked by shortages and supply chain disruptions.

“Retailers that have been able to clean up past merchandise and accurately forecast inventory needs will be best positioned for growth,” said Steve Sadove, senior counsel at Mastercard and former CEO and chairman of Saks Inc.

Source Link

Related Posts

%d bloggers like this: