Holiday Spending Slowing Down Before It Even Really Started?
The typical growth in sales associated with holiday shopping is expected to be cut in half this year due to the persisting effects of hyperinflation.
With rising inflation and a possible recession around the corner, consumers are spending more cautiously this year. So experts predict a marked slowdown in holiday spending this year. That is not good news for retailers as we head into the prime shopping session.
Last year retailers benefitted from a significant post-pandemic shopping splurge. In total, U.S. shoppers accounted for $862 billion in holiday sales. And that reflected a 13% growth rate.
Unfortunately, this year does not look nearly as promising. Analysts are watching consumer spending habits closely. And they have some rather dim news for holiday spending this year.
Women’s Wear Daily reported on the forecasts newly released by Customer Growth Partners (CGP). The company is a retail consulting and research firm. According to its data, they only predict 5.8% year-over-year growth.
And while that does not sound too bad on its face, it is far from ideal for retailers. It represents a drastic slowdown in holiday spending from the previous year. And, when combined with the 8.8% inflation rate, it results in a drop in spending.
The president of Customer Growth Partners, Craig Johnson, shared some cautionary words. He said, “the dramatic deceleration in retail growth is due to rampant inflation across most sectors, but particularly in food, gasoline and household utility costs — all essential goods that are crowding out spending on discretionary items. With discretionary items dominant in the Christmas season, the threat to holiday gift-giving has rarely been higher—particularly for lower-income household that are hard-pressed to weather the inflation winds.”
Several CGP forecasts factor into the overall decline in holiday spending. They include a 9.5 growth in the home improvement sector, predicted to lead the way. Hot on its heels are stores that fall under the “miscellaneous” category.
These stores include places that sell pet supplies, used goods, and office supplies. Also included under this category are gifts that are the heart of holiday spending. CGP predicts an 8.9% growth for that sector.
Additionally, the food and beverage sector is expected to grow by 8.2%. But, that number will almost entirely be due to increased costs rather than additional holiday spending. The overall unit sales aren’t doing so well.
CGP predicts that other industries will struggle mightily for the remainder of the year. Electronics and appliances will likely see a 6.2% decline. And even with online sales forecasted at a 7.4% growth, it is nowhere near the traditional double-digit growth.
CGP’s forecasts mirror other companies and retail analyst firms. Deloitte predicts holiday spending growth to fall between 4% and 6%. And Cowen & Co. believes there will be roughly 6.5% growth.
However, all outlets caution that after factoring in inflation, the picture is not quite as rosy. According to Johnson, “…the slower growth shows the sharp effects of food inflation and energy prices in particular — which are estimated to take some $25 billion out of discretionary spending for the holiday period — at the same time that consumer fundamentals are weakening, including slower income growth and plummeting savings rates.” Even so, he strongly believes the economy will stabilize in 2023, which would be good news for shoppers and retailers alike.
