Holiday shoppers still expected to spend, but warily

While US holiday spending is not expected to see the growth it did in the past two years, sales are expected to reach a record high due to inflation.

Shoppers also are being more choosy in how they spend their depreciating dollars.

The National Retail Federation (NRF) on Nov 3 forecast that holiday retail sales during November and December will grow by between 6 percent and 8 percent over 2021 — to between an all-time high of $942.6 billion and $960.4 billion.

In 2021, sales increased 13.5 percent over 2020 and totaled $889.3 billion, breaking previous records. In 2020, the increase was 9.3 percent, during a harrowing time when the coronavirus pandemic and its attendant supply chain snags and production issues vexed holiday shoppers.

"While consumers are feeling the pressure of inflation and higher prices, and while there is continued stratification with consumer spending and behavior among households at different income levels, consumers remain resilient and continue to engage in commerce," NRF President and CEO Matthew Shay said. "In the face of these challenges, many households will supplement spending with savings and credit to provide a cushion and result in a positive holiday season."

While e-commerce will remain important, households also are expected to shift back to in-store shopping and a more traditional holiday shopping experience, the NRF suggested.

"This holiday season cycle is anything but typical," NRF Chief Economist Jack Kleinhenz said. "Despite record levels of inflation, rising interest rates and low levels of confidence, consumers have been steadfast in their spending and remain in the driver's seat.

"The holiday shopping season kicked off earlier this year — a growing trend in recent years — as shoppers are concerned about inflation and availability of products," he said. "Retailers are responding to that demand, as we saw several major scheduled buying events in October.

Companies like Target Corp and Walmart Inc have been sitting on a lot of inventory, leading them to offer early discounts.

Major retail chains have been directing a large number of their holiday personnel to work on store floors to welcome consumers' shift back to in-store shopping from online.

In a Nov 3 release, Walmart also said it would be giving customers a break from inflation.

"We're proud to offer customers this year's Thanksgiving meal at last year's price so families don't need to worry about how they'll set their holiday table," the retail giant said in a Nov 3 release, adding that the offer would run through Dec 26.

E-commerce giant Amazon.com Inc held a second Prime Day event early in October to capture more holiday spending by appealing to cost-conscious buyers.

"We're not quite sure how strong holiday spending will be versus last year. And we're ready for a variety of outcomes," Amazon's Chief Financial Officer Brian Olsavsky told analysts recently.

Adobe Analytics forecast online sales in November and December to rise only 2.5 percent to $209.7 billion, compared with an 8.6 percent increase a year ago.

As for the pinch of inflation, Kleinhenz, speaking during a call about the NRF release, said, "Certainly, a portion of our increase is going to come from higher prices, but not the strangling prices that are occurring in motor vehicles, gasoline and energy as we go forward this holiday season."

The average price nationally for a gallon of regular gasoline was $3.79 on Sunday, up 3 cents from last week, according to AAA. That number is also 38 cents more than what motorists paid a year ago. So, higher fuel costs could be a factor in those trips to the mall for holding shopping.

Persistent US inflation in the 8-9 percent range has pummeled consumer spending power, which prompted the fourth straight 75-basis-point rate increase from the Federal Reserve on Nov 2 and led many to cut down on discretionary purchases.

"As a result of inflation, 82 percent of shoppers say they intend to look for more deals and discounts, while 72 percent plan to look for less expensive alternatives," according to a Morning Consult survey.

"I'm skipping the splurge this year," said Kate Cheng, who owns a jewelry store in San Francisco, to The Wall Street Journal. Cheng said she usually buys a designer handbag or other luxury item during the holidays but is holding back this year due to concern about a potential recession.

Cheng said she noticed a shift in her customers' buying habits in recent months from gold to silver, which made her rein in her own spending.

Vered DeLeeuw of Washington DC said she used to buy most of her clothes at Bloomingdale's but switched to Nordstrom Rack for discounts. "Bloomingdale's was my mother ship, but it is too expensive now," the food blogger told the Journal.

In its annual holiday spending survey, The Conference Board found that US consumers intend to spend an average of $613 on holiday gifts this year, down from $648 last year.

But they expect to spend more on related non-gifts items this year — $393 compared to $374 last year, reflecting inflation and surging food prices.

"Consumers appear to be rebalancing their budgets and priorities by reducing their gift-giving circles to help offset the higher costs of non-gift items, in particular food," said Lynn Franco, senior director of economic indicators at The Conference Board, a New York think tank, in a news release.

The survey also found that only 39 percent of consumers plan to make at least half of their gift purchases online this year — down from 52 percent in 2020, which could provide a boost for brick-and-mortar retailers.

"I attribute that both to people are more comfortable about being out and shopping again, and they also have missed out on that holiday shopping experience that many people love," said James Cook, director of US retail research for JLL, the St. Louis Post Dispatch reported.

Reuters contributed to this story.