Uncertainty — a mainstay for retailers in the past few years as the pandemic roiled both supply and demand — is back for the holidays, with consumers and retailers alike facing higher costs.
Last year during the season, a new COVID-19 variant kept some consumers from gathering and away from stores. But in the end, with many households still benefiting from the government’s financial support, holiday sales were robust. This year, that financial cushion is gone, just as consumers grapple with what has been months of budget-busting price increases on essentials.
There’s some good news in recent days. Lower fuel prices have helped boost consumer confidence to the strongest level since April, according to a Tuesday client note from Wells Fargo economists Tim Quinlan and Shannon Seery.
“Falling gasoline prices and a still-tight labor market are the main reasons we have seen a recent rebound in confidence,” they said. “But as inflation persists and the Fed lifts rates to combat it, we are unlikely to see confidence approach pre-pandemic levels.”
Some 40% of consumers say that inflation will affect their holiday shopping decisions somehow, according to Bankrate research.
“Overall, holiday sales won’t be terrible this year, but a lot of growth will be driven by inflation and underlying volumes will be down in many categories,” GlobalData Managing Director Neil Saunders said in emailed comments. “This is a very different reality to 2021 when things were booming.”
Inflation is forcing consumers to strategize, and here’s what seems to be happening.
In order to stretch their holiday budgets, some people are pulling out their lists ahead of schedule.
Nearly a third (29%) plan to shop a month early, and another 20% will start two months ahead, according to a survey from ad creation platform Creatopy. According to Bread Financial, 21% started in early September.
Some 46% said they plan to start holiday shopping before Halloween, though that’s down 7 percentage points from last year, according to research from AlixPartners.
“Half of holiday shoppers are expected to begin by October 31 and many seem to hope an early start will help them fight back against inflation,” Bankrate Senior Industry Analyst Ted Rossman said in a statement.
These early birds are getting help from Amazon and Target, which have scheduled holiday sales and gift guides for early October.
Smaller budgets, less loyalty
Early shopping works fine for retailers, as long as they’re ready with the merchandise, a challenge given lingering supply chain issues. But the season is also complicated by the way inflation has created a choosey, less loyal consumer very keen on finding a deal.
A whopping 84% of holiday shoppers plan to somehow reduce the cost of their purchases, according to Bankrate. Bread Financial similarly found that inflation is affecting holiday spending plans for 83% of shoppers, driven by Gen Z and millennial consumers.
That comes in several forms: 41% are looking for coupons, discounts and sales, 40% will buy fewer things and 21% will opt for cheaper brands, Bankrate found. Large majorities are choosing where to shop based on free shipping (67%), deals or promotions (66%) and value for the price (58%), according to Creatopy.
Consumers are paying more but getting less. Half the holiday consumers surveyed by Creatopy said they’re either “somewhat worried” or “very worried” about how inflation will impact their shopping plans, though 37% say they’ll spend about the same as last year, and 46% will spend more than $200 on gifts.
A little over a third (36%) plan to spend more compared to last year, and Gen Z and millennials promise to be “holiday’s most bullish spenders,” according to Bread Financial.
Credit cards and payment plans
U.S. households have already turned to credit cards and payment plans this year to amplify their spending power.
About a third of U.S. consumers say they’re tapping their savings more than usual, while 46% say they’re investing and saving less, according to the Ipsos-Forbes Advisor U.S. Consumer Confidence Tracker. Consumers piled on a record $67.1 billion in credit card debt during the second quarter alone, according to research from WalletHub.
That could rise to $110 billion for the year, per that report. Indeed, most households (78%) carry some credit card debt, with 43% holding more than $5,000 and 21% more than $10,000, according to debt management firm Beyond Finance.
That promises to swell after the holidays, as Bankrate found that 27% will go into debt to bankroll their holiday spending. Half the consumers surveyed by Beyond said they expect to pay for this year’s holiday purchases “mostly with credit cards,” and about 7% will turn to payment options like cash advances and buy now, pay later. Bread Financial found that a free gift, cardholder discount or financing by BNPL or credit card could get 86% of holiday shoppers to spend more than they planned.
“The latest credit card debt statistics indicate that the average U.S. consumer’s financial situation has the potential to get much worse before getting better,” WalletHub analyst Delaney Simchuck said in a statement. “As unemployment rates start to rise, people will find themselves with more and more debt, and if prices remain high, a lot of us will have trouble making ends meet.”
Retailers may eke out a decent holiday — AlixPartners expects a “tepid” 4% to 7% year-over-year rise — if they can meet the needs of a beleaguered consumer.
“Seasonal spending is spreading out as consumers focus on getting what they need in the moment,” Marshal Cohen, chief retail industry adviser at the NPD Group, said in a statement. “Retailers and manufacturers should prepare for Holiday 2022 to follow suit with an elongated shopping season and consumers shopping prudently to account for higher prices across retail.”