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Holiday shopping season expected to be muted as inflation squeezes shoppers
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HOLIDAY SHOPPING SEASON EXPECTED TO BE MUTED AS INFLATION SQUEEZES SHOPPERS

Published Tue, Sep 13 202211:10 AM EDTUpdated Tue, Sep 13 202211:40 AM EDT
Jack Stebbins@jackstebbs
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Key Points
 * Holiday sales are forecast to grow from last year, though the increase will
   likely be driven by inflation.
 * Consumers are expected to be more budget conscious as inflation pushes up
   prices for groceries and other necessities.
 * Discounting is expected to continue at least through the holidays.

Shoppers hold hands at the Willow Grove Park Mall in Willow Grove, Pennsylvania,
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 tightening budgets.

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



Already, retailers have relied heavily on discounts to move excess inventory and
clear shelves in time for the holiday shopping season, which typically kicks off
with Black Friday after Thanksgiving. It’s a critical time for retailers and can
account for upwards of 40% of a company’s annual sales.

Here’s what forecasts say shoppers and retailers can expect.


A MORE MUTED SEASON

On paper, this holiday season’s sales may appear healthy, with Bain & Co.
forecasting growth of as much as 7.5% from last year. But when adjusted for
inflation, it expects growth of just 1% to 3%, which is below its 10-year
average. 

The modest forecast follows the 14.1% jump for last year’s holiday season,
according to the National Retail Federation. That increase was chalked up to
shoppers being eager to spend their savings as pandemic restrictions eased, even
as supply chain bottlenecks slowed deliveries.

Now, consumers and retailers alike are facing a bleaker reality. A poll
commissioned for CNBC by Morning Consult showed more than half of consumers are
either somewhat or very concerned about staying within their holiday-spending
budgets, and 80% expect to be affected by inflation.



The poll also found 52% of respondents said it will be harder to afford their
holiday expenses this year than in 2021.

“It’s for sure a year in transition,” said Matt Kramer, KPMG’s national sector
leader for consumer and retail.

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


MARKDOWNS GALORE

Retailers are expected to continue leaning on promotions, a lever they’ve grown
familiar with while struggling to adjust to changing shopping habits in recent
months.

As pandemic restrictions eased and people started going out more, many companies
found they had stocked up too much on items people didn’t want anymore. That
forced them to heavily discount products to clear shelves and make room for the
holidays.

In August, Target reported a steep drop in earnings and slashed financial
outlooks following steep markdowns. Walmart in July opted out of competing with
Prime Day after it was forced to significantly slash prices to move its own
inventory.

The discounting is expected to continue into the holiday season, with 73% of
retail executives telling KPMG their stores will be more promotional, and 21%
saying they plan to be “much more” promotional. 

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


ONLINE VS. IN-STORE SALES

Holiday shopping could start as early as October as shoppers start hunting for
deals early, according to Mastercard SpendingPulse.

That report also predicts that clothing will have the strongest growth as people
returning to offices opt for nicer outfits. Executives from Nordstrom and Macy’s
noted the growing demand for such clothing at the Goldman Sachs Annual Global
Retailing Conference last week. 

Sales of luxury goods are also expected to be relatively strong, according to
Mastercard SpendingPulse, echoing the summer’s reports of continued strength in
spending among higher-income consumers.

In-store sales are forecast to grow 7.9% as retailers lean into doorbusters and
capitalize on people going out to shop again this year, according to Mastercard
SpendingPulse. Online sales are expected to grow 4.2%.

A report by Deloitte, however, estimates stronger e-commerce growth of between
12.8% and 14.3%, which it attributed to budget-focused consumers going online to
find deals and compare prices.


BACK TO PROMOTIONS?

Even if retailers see stronger sales this holiday season, 92% of executives
surveyed by KPMG said they expect a recession in the near future. Eighty-one
percent said they believe a recession would last a year or less.

To prepare, 52% of retailers said they would seek to cut indirect expenses,
while 42% said they would invest in customer loyalty, reduce direct expenses and
reduce inventory. 

The summer’s inventory gluts could also come back to haunt retailers, with 56%
percent of executives expecting to be stuck with excess merchandise after the
holidays. That could lead to even more discounting.

The worries are a stark contrast to the 2021 holiday season, which was marred by
shortages and supply chain bottlenecks.

“Retailers who were able to clear past merchandise and accurately forecast
inventory needs will be the best positioned for growth,” said Steve Sadove,
senior advisor for Mastercard and former CEO and chairman of Saks Inc. 


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