Spending — As August hits the halfway line, September will welcome the first hints of Christmas spending. Although it is usually better to begin shopping early, the present state of the economy has created a conundrum that may influence people’s spending patterns.
Customers will be forced to be more careful with their purchases this year, according to early Christmas spending projections, with little to no choice but to spend less. Despite the fact that it is just August, many people are already making plans for their Christmas spending.
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The last two months of the year
Customers looking for deals and discounts on Christmas gifts usually dominate November and December. They accurately estimate consumer spending power.
The last two months of the year are significant for retailers since they account for one-fifth of total yearly sales.
According to one prediction, this year’s Christmas sales may be lower than in previous years as retailers prepare for the key fourth quarter, which often results in total profitability. Regardless, sales are likely to increase over last year.
“We are cautiously optimistic about the holiday season,” said Coresight Research senior retail/technology analyst John Harmon.
According to Coresight, year-end holiday sales for October to December 2023 will increase by the low single digits compared to 2022.
The National Retail Federation predicts that holiday sales in November and December 2022 will increase by 5.3% over the previous year. However, the numbers do not indicate that the year is on track to hit a new low. It should instead be seen as the United States emerging from a period of exceptional economic activity.
According to Harmon, estimates for 2023 are based on excellent years of large holiday sales growth, the difficulties of drawing parallels, and forecasting how soon holiday spending may begin.
“The patterns of holiday spending have changed,” said Harmon. “It doesn’t all happen all in the fourth quarter these days.”
Harmon’s remarks reminded me of the year 2021, when corporations like Amazon and Walmart were worried about customer demand due to the pandemic, prompting them to start Christmas shopping in October. In 2022, a similar trend was replicated, extending the Christmas shopping season.
For example, Home Depot said this week that it will begin selling holiday-themed things online. Following early customer interest in Christmas products, the company declared that it will utilize the same strategy as in previous years to increase holiday merchandise sales.
Harmon, on the other hand, highlighted the fact that retail sales in the United States are declining.
“There are pluses and minuses for the consumer,” he said.
Despite low labor-force participation, hourly salaries in the United States continue to rise year after year, lending credence to his claim. As a result, any gains achieved by a household are offset by a number of variables. According to Coresight, one of the challenges is ongoing (albeit diminishing) inflation on items such as:
- Interest-rate hikes
- Slowing housing market
- Resumption of student loan repayments
“The savings rate has gone down and it’s a concern that consumer debt levels have gone up,” said Harmon.
In addition, credit card debt in the United States has reached all-time highs. Credit card debt has reached $1 trillion for the first time, according to the Federal Reserve Bank of New York.
Shopper and spending resilience
According to John Harmon, customers continue to show resilience in the face of various headwinds by spending on needs, discretionary items, and services.
“So far, consumers really seem to have the desire, will, and ability to keep spending,” he said.
“Barring any cataclysmic event, things seem to be moving in that direction and we don’t foresee a huge risk to holiday spending.”
Back-to-school sales patterns in 2023 back this up. School-related goods sales are predicted to rise 1.5% in 2023, while back-to-school retail sales inflation is expected to fall from 5.9% in 2022 to 0.3% in 2023, according to S&P Global Market Intelligence. According to the study, greater wages have also aided in keeping spending under control.
Marshal Cohen of Circana expects that gift spending will continue to fall.
“The good news is there will be pent up demand on the gifting side of the equation,” he said.
“Spending on essentials, and a lot less on discretionary products, means we have a lot of catching up to do by holiday time and a long list of desires to share with those giving gifts.”
Cohen also predicted that the 2023 holiday season will be similar to the 2022 season, with a late October start, Cyber Monday surpassing Black Friday, and a long wait until the last two weeks before the holidays.
“Consumers are in no rush to spend, and a lack of inspiration with so few new and exciting items makes for a ho-hum holiday at retail,” Cohen noted.