Inside the 2023 holiday season

As the summer winds down, retailers are preparing for the all-important back-to-school and holiday shopping seasons. So far in 2023, despite inflation, economic uncertainty and a prioritization of spending on experiences over goods, consumers have come through pretty well for the industry. Yet, even with the first half of the year over, it’s hard to know what’s ahead.

That’s in part because recent holidays aren’t providing many clues, according to Meghann Martindale, head of retail research at Madison Marquette.

During the height of the pandemic in 2020, people stuck at home spent mostly on goods; the 2021 holiday season helped launch a year of splurging, including refreshing closets; and, in 2022, despite inflation, holiday shoppers were by and large still in the mood to spend. But this holiday isn’t likely to be like last year, or the year before, or the year before that, she said by phone.

“Last year, consumers were still kind of in the high of ‘Great, everything's back to normal. We're just going to spend like we don't care,’” she said. “I don't know that consumers will be as bullish this year.”

As the season approaches, these are some of the forces that are working both for and against retailers.

First, the good news

Inflation is down

In 2022, holiday spending rose nearly 7% year over year, but much of that was due to inflation, according to GlobalData. While this year prices have been declining at least somewhat in many categories, the cost of gas, groceries and other essentials shrank many households’ discretionary spending budgets throughout much of the first half. June’s inflation rate hit 3%, the lowest in more than two years, according to the U.S. Bureau of Labor Statistics. That was moderate enough to push up unit volume, and not just spending, in some segments.

"Consumer concern about inflation hit its lowest point since Morning Consult began tracking last year: 47% of Americans said they’re very concerned about inflation, versus 64% a year ago,” Morning Consult retail and e-commerce analyst Claire Tassin said in emailed comments last month.

Consumer sentiment is up

Even more recently, consumer confidence, which had been in the doldrums, in July rose to the highest level in two years, according to the Conference Board Consumer Confidence Index.

The University of Michigan Survey of Consumers also found that consumer sentiment rose for the second straight month “soaring 11% above June and reaching its most favorable reading since October 2021,” according to a report from Director Joanne Hsu.

The elevated sentiment could be because of good economic news in real terms. Employment remains strong, and real wages are up, now even beating inflation, according to Telsey Advisory Group analysts Dana Telsey and Joseph Feldman. Morgan Stanley analysts last week went so far as to credit “Bidenomics,” specifically White House infrastructure and manufacturing policies, for spurring GDP growth and lessening the chance of a recession.

"With a few months to go until the holiday season, the forecast is hazy, but hopeful,” Sherry Smith, general manager of global enterprise at performance marketing technology company Criteo, said by email. “Despite economic challenges, consumers will continue to make the most of every moment this holiday season, which includes getting a head start on their holiday shopping.”

A UPS strike averted

The Retail Industry Leaders Association in late July warned that an impending strike by unionized UPS workers would be “kryptonite” to supply chains just ahead of the holiday season. But a few days later, a tentative agreement was reached.

Ratification isn’t guaranteed, as Teamsters locals and rank-and-file members must approve the deal. Regardless, “it’s important for retailers and other businesses affected to recognize the ongoing nature of volatility in the supply chain space and take the necessary actions to improve their ability to sense and manage change,” Inna Kuznetsova, CEO of supply chain planning and optimization firm ToolsGroup, said by email.

Consumers want to ‘return to normal’

Top searches related to Labor Day — involving outdoor activities, patio furniture, electronics, home improvement and beer — indicate a “desire to return to normalcy” and provide an opening for retailers to re-engage with customers, according to Isaac Gerber, data and analytics lead at Captify.

That’s spilling into end-of-year shopping as well, Gerber said by email. 

“We’re seeing early indications of a strong holiday shopping season,” Gerber said. “Interest in holiday deals is already starting to build, with mid-year interest already 450% higher than the same time last year. While many things can happen in the next few months, we’re optimistic about this return to normal for retailers who count on a boost to sales during the holiday season.”

And some of the challenges

Consumers are keen to find deals

While lower inflation means more discretionary spending in consumers’ pockets, there’s some downside for retailers, Martindale said. Margins will be under pressure on two fronts — many retailers still have surpluses of inventory that will require markdowns, and consumers are expecting price tags to shrink.

Matt Pavich, senior director of strategy and innovation at Revionics, an Aptos company specializing in AI-driven pricing optimization, also said that shoppers will be on the hunt for good prices during the back-to-school period.

“In recent years, consumers have learned to navigate numerous additional channels and purchasing options while also bearing the brunt of inflation,” Pavich said by email. “As such, consumers are more savvy than ever and will definitely be looking for deals during the ... season. Retailers need to be aware of this and offer great products at great value across all channels while considering some less traditional retailers as competitive threats. There is no doubt that the competitive landscape is more sophisticated and challenging than in the past and retailers need to bring their A game.”

Some retailers at risk as student loan forgiveness ends

U.S. consumers are already carrying nearly a trillion dollars in credit card debt, a record, which alone might hamper some household spending at the holidays, according to Martindale.

After the Supreme Court struck down President Biden’s student debt forgiveness program, millions of household budgets will each be out hundreds of dollars more per month, according to number-crunching from consumer data firm Earnest Analytics. That translates to a burden of 3.4% to 8.4% per month on consumer budgets, with middle-income earners impacted the most, according to Telsey Advisory Group analysts.

Those with higher market share among these borrowers — including Peloton, Ikea, Ashley, HomeGoods, Wayfair, Lowe’s, and most apparel and department stores — will especially feel the pinch as their customers divert funds to their loans, per Earnest’s report. Old Navy had the highest share at 14%, while Nordstrom’s full-price business had the lowest share at 8%.

Telsey analysts see American Eagle Outfitters, Best Buy, The Children’s Place, Dick’s Sporting Goods, Foot Locker, Gap Inc., Hibbett, Joann, Kohl’s, Macy’s, Signet Jewelers, Stitch Fix, Target, Under Armour, Victoria’s Secret and Williams-Sonoma as most at risk, and Dollar General, Dollar Tree, off-price conglomerate TJX Cos. and Walmart least at risk.

But apparel retailers will be hurt the most, according to UBS analysts, who called the end of student loan forgiveness “a big problem.” They identify American Eagle, Crocs, Foot Locker, Canada Goose, Gap Inc., Nordstrom, Nike, Under Armour and Victoria’s Secret as among the brands vulnerable to the consequences.

The ‘anti-woke mob’ is still out there

Extremist groups’ success in riling up some people around Pride month ruined many retailers’ attempts to celebrate the LGBTQ+ community, particularly Target, once an outspoken ally. The retailer, which offered some of the most extensive Pride merchandising in retail, still hasn’t commented since being forced to alter its Pride displays in some stores after protestors confronted store workers, wrecked signage, destroyed merchandise and spread falsehoods about the assortment.

The holiday season offers retailers no protection from the people and groups — mostly right-wing pundits, politicians and hate groups rallying against “wokeness” — that are fomenting such behavior, according to Alison Taylor, executive director of the Ethical Systems program at New York University’s Stern School of Business. Retailers will only invite counter-backlash, often from some of their best customers, if their response seems meant to appease extremists.

“Even if you have clarity over your long-term position, it’s clear these boycotts and campaigns can do serious short-term financial damage,” she said by email. “And handling them badly can make the damage much worse, so panicked over-correction is a bad move!”

Dive Brief:

• Mastercard’s SpendingPulse report predicts that between Nov. 1 and Dec. 24, U.S. retail sales excluding automotive will increase by 3.7% compared to last year. The figure is not adjusted for inflation.
• E-commerce is expected to increase 6.7% year over year, while in-store sales is expected to increase 2.9% from the previous year, according to the report.
• Electronics sales are projected to grow 6% from last year, with the next biggest increase being for restaurant spending (5.4%) and groceries (3.9%). Apparel purchases, however, are only expected to rise by 1%, and jewelry spending could dip by 0.3%, according to the report from the card network company.

Dive Insight:

Judging from the recent Mastercard SpendingPulse report, this year’s holiday season could look slightly different than 2022. Last year, the card giant’s holiday report estimated that consumers would spend 7.1% more than they did during the 2021 holiday season. Plus, the report anticipated a bigger uptick in e-commerce and in-store spending at 4.2% and 7.9%, respectively.

Inflation may have a dampening effect on consumer spending this year. While the rate of inflation has generally begun to cool, it had a slight uptick in August, according to the most recent Consumer Price Index report. The CPI rose 0.6% in August and 0.2% in July. “Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment,” the report said.

Meanwhile, the Federal Reserve announced Wednesday that it will pause its interest rate increases, at least for now, and hold the federal funds rate between 5.25% and 5.5%.

In its report, Mastercard noted that the state of the economy, particularly the labor market, household savings and consumer access to credit will play a role in consumer spending during the upcoming holiday season. Inflation and interest rates could also shed light on what products consumers may buy over the holidays, according to the report. 

“While the consumer of holidays past may have been a consumer trying to find footing in a rapidly shifting economy, the consumer of holidays present has taken their power back,” Michelle Meyer, U.S. chief economist at the Mastercard Economics Institute, said in a statement. “We expect these individuals to impressively navigate the holiday season, making choices and trade-offs that best suit their lifestyles.” 

Dive Brief:

• Halloween spending will reach an estimated $12.2 billion this year as more people are expected to participate and spend for the holiday compared to last year, the National Retail Federation said Wednesday. 
• Prosper Insights & Analytics surveyed about 8,000 people and found that 73% of them said they plan to participate in Halloween-related activities this year. That’s up from 69% in 2022.
• Anticipated total spending of $3.9 billion on Halloween decorations is expected to surpass the projected $3.6 billion consumers will spend on candy this year. Spending on candy is up from $3.1 billion last year. Spending on adult costumes will reach $2 billion, while spending on children’s costumes is anticipated to hit $1.4 billion. 

Dive Insight:

After a dip in participation and spending at the height of the pandemic, Halloween is expected to break records this year. Half of the survey participants said they plan to dress up for the holiday, while 68% plan to hand out candy and 53% plan to decorate their homes or yards for the upcoming holiday on Oct. 31, NRF said Wednesday.

“More Americans than ever will be reaching into their wallets and spending a record amount of money to celebrate Halloween this year,” NRF President and CEO Matthew Shay said in the organization’s announcement.

Spending on decorations, which grew in popularity during the pandemic, continues to resonate with consumers, the NRF said. Of those who plan to celebrate, 77% plan to purchase decorations. That’s in line with last year and up from 72% in 2019. NRF also reported that 32% of people surveyed plan to throw or go to a party, up from 28% last year, while 28% of those surveyed plan to take their kids trick-or-treating. 

Nearly the same percentage of people (40%) plan to visit a discount store as those who plan to visit a Halloween specialty store (39%) to buy their holiday items, while 32% of people said they’ll go online to buy Halloween-related items.

For big events or holidays, like back-to-school and the winter holidays, including Christmastime, earlier shopping seems to be a rising consumer trend. The Home Depot, for example, introduced its Halloween product lineup a week after July 4. That could also mean good news for a specialty retailer like Party City. The company relies heavily on consumer spending on holidays and celebratory events and just exited bankruptcy earlier this month.

Halloween appears to be no exception to the trend of early shopping for important or family-focused events, with 45% of those celebrating Halloween saying they plan to start shopping before October. That’s up from 33% a decade ago, the NRF said.

“Younger consumers are eager to begin their Halloween shopping, with more than half of those ages 25-44 planning to shop before or during September,” Phil Rist, Prosper’s executive vice president of strategy, said in a statement. “Social media continues to grow as a source of costume inspiration for younger consumers, as more people under 25 are turning to TikTok, Pinterest and Instagram for ideas.” 

Thirty-seven percent of people say they’ll go online for inspiration this year. And consumers are expected to spend $700 million on costumes for their pets. The NRF also said this year’s top movies and shows are influencing the holiday, with Spiderman, Barbie and Mario expected to be top costumes this year.

Dive Brief:

• Amazon said Tuesday that it’s hiring 250,000 full-time, part-time and seasonal employees to support holiday operations in fulfillment center and transportation roles. It’s a notable increase from last year when the company said it expected to hire 150,000 people ahead of the holiday season.
• The jobs pay $20.50 hourly on average. Starting pay for the seasonal positions ranges from $17 per hour to $28 per hour, depending on the role and location in the U.S. Some positions are also eligible for signing bonuses ranging from $1,000 to $3,000.
• In the announcement, Amazon touted its benefits, which include health insurance from the first day of employment; a 401(k) with company match; up to 20 weeks of paid parental leave; and employee discounts on merchandise sold and shipped by Amazon.

Dive Insight:

The retail industry typically hires hundreds of thousands of people to support holiday operations. But it appears that some companies have pulled back on seasonal hiring so far this year, with plans at their lowest since 2008, CNN reported. But the opposite appears true at Amazon, which wants to hire enough people in the U.S. to populate a mid-sized city. 

“Whether someone is looking for a short-term way to make extra money, or is hoping to take their first step toward a fulfilling and rewarding career at Amazon, there’s a role available for them,” John Felton, Amazon’s senior vice president of worldwide operations, said in an announcement.

In California alone, Amazon wants to hire 30,000 this year, the company said in a separate announcement. 

For 2022, Amazon said the median annual total compensation for its full-time U.S. employees was $41,762. That’s up almost $2,100 from the previous year, the company said in its most recent proxy report. The company said it’s investing $1.3 billion this year to support pay raises for customer fulfillment and transportation employees.

Amazon said it employed about 1.54 million full- and part-time workers as of Dec. 31, 2022.

Amazon on Monday announced its fall sale, dubbed “Prime Big Deal Days” will start on Oct. 10 and run for 48 hours. The retailer is positioning the October sale as a way for consumers to get deals and a substantial head start on holiday shopping — about six weeks earlier than the traditional start of the season on Black Friday in November. Walmart, Target and others have already jumped on the announcement with their own October savings events, and are likewise releasing holiday hiring plans. Target this week said it would hire about 100,000 seasonal employees, consistent with last year, while Macy’s is planning for 38,000.

Amazon’s second-quarter online retail sales exceeded analysts’ expectations. Net sales reached nearly $53 billion, rising 4% year over year, the company reported last month.

Consumers are retrenching in the face of the delta variant of the coronavirus, with 20% "highly optimistic" about a return to normal, down from a third at the beginning of summer 2021, according to Numerator research. Nearly 60% are "very or somewhat concerned" about holiday plans being disrupted by the pandemic, Berkeley Research Group found.

After waning this year, troublesome uncertainty is gaining strength, as the delta variant of the virus spreads and immunization rates in many areas falter. The number of people who said they had resumed pre-COVID behaviors fell for the first time, from 39% in July 2021 to 27% in August, Numerator said. Nearly half say they expect a full reopening to be delayed until 2022 or later, up from 23% who said so in July and 18% in June, the firm found. 

The comfort level of shopping without a mask dropped 15 percentage points from July to August, with 34% preferring to go in stores with mask requirements and 36% having a higher level of respect for businesses that enforce mask wearing, per Numerator research. 

Wells Fargo economists noted that new COVID-19 cases were averaging about 100,000 daily at the time of their August 2021 economic outlook report, but had risen to more than 150,000 per day at the time of their September report. 

"As a result, Americans have generally become more cautious," they noted.

To address the renewed strength of the disease and its risks to health, life and the economy, President Joe Biden last week announced an unprecedented move to require large businesses to vaccinate their employees or have any unvaccinated employees produce a negative test at least weekly.

In the meantime, many consumers are falling back into their cautious pandemic ways. That includes shopping online more: Nearly 60% will use a mix of online and in-person shopping for the holidays, but just 13% plan to shop entirely in physical stores, while 24% plan to shop entirely online, Berkeley Research Group found.

Pandemic-related declines in tourism and office work that affect retail are also surging again. Numerator found that comfort with traveling for leisure declined seven percentage points from July to August. And the number of employees telecommuting due to COVID-19 rose 400,000 in August, the first increase in work-from-home since late last year, according to the National Association of Real Estate Investment Trusts.

The backsliding is occuring as retailers prepare for the holiday season, which for many can make or break their year. Services like curbside pickup are likely to regain their importance, according to Forrester Principal Analyst Brendan Witcher, speaking by phone.

The delta strain's impact is also being felt on the supply side, with several retailers reporting rising freight costs and inventory constraints. Retailers should be prepared not only to offer omnichannel services but also to sell a lot of gift cards.

"We don't see these problems easing up before the holidays, so retailers will need to be creative in how they attract shoppers given the strain on popular items," Darren Morrison, a managing director at Berkeley Research Group, said in a statement.

Amazon said on Monday that its second major Prime sale this year will run for 48 hours starting Oct. 10. The retailer is calling the Prime member-exclusive event “Prime Big Deal Days.” The retailer is positioning the October sale as a way for consumers to get deals and a substantial head start on holiday shopping — about six weeks earlier than the traditional start of the season on Black Friday in November.

Amazon’s Prime sales typically offer discounts in the fashion, home and toy categories. Amazon said deals for October’s event will include Sony, Dyson, SharkNinja, LG and Barbie.  During Prime Day this year, which took place in July, Amazon said top sellers included the Fire TV Stick, Laneige Lip Glowy Balm, Apple AirPods, and a Bissell portable deep cleaner.

Amazon said last month that Prime members in 19 countries, including the U.S., U.K., Canada, Germany, Japan, Portugal, Spain and Singapore, can participate. The retailer said it is also promoting select offers and curated shopping experiences ahead of October's event.

Amazon is promoting influencer-curated shopping lists ahead of the fall sale. In addition, U.S. customers can find influencer picks on Inspire, which is Amazon’s personalized feed of shoppable content within the shopping app. Amazon also said Prime members can save up to 50% on early Prime Big Deal Days offers in store at Amazon Style store locations in California and Ohio. Customers who shop at those stores can also receive an extra 20% off their entire purchase. Consumers who want to shop small also have the ability to filter by small businesses, Amazon said.

The upcoming event is Amazon’s second major Prime sale this year. The first day of July’s Prime Day sale was the largest sales day in Amazon’s history, the company said. Although Amazon did not disclose specific sales figures, the company said shoppers during July’s Prime Day event saved more than $2.5 billion globally. 

According to an Adobe report on the event, the sales blitz also influenced nationwide e-commerce, with U.S. sales rising 6% year-over-year on July 11. According to the U.S. Department of Commerce, e-commerce in the U.S. rose nearly 12% in July, which analysts partially attributed to Prime Day.

Amazon also offered a fall sales event last year. Analysts estimated that it generated billions in sales, but with smaller order values it likely fell short compared to last summer’s Prime Day.

This year’s fall Prime sale also comes as federal student loan repayments are set to resume after a pandemic-related three-year hiatus. According to one report, consumers will have $300 less per month to spend, while consumers continue to hold back on discretionary spending.

Dive Brief:

• Shein on Sunday showcased apparel from nine of its collections for Fall/Winter during a shoppable livestream show, Shein Live: Front Row, according to a company press release.
• Actress and influencer Teala Dunn and Shein host Renee Ariel hosted the three-hour event, which streamed on the Shein app and across the retailer’s Facebook, X, YouTube and Instagram pages. The retailer's app had an average of 450,00 to 500,000 viewers per hour, while its Instagram had between 1,800 and 2,000 viewers per hour.
• The event featured outfits from Shein’s Iconic Chic, Totally Timeless, Comfy Cool, Street Style, Ready for Romance, It Girl, Boho Glam, Fits For All and Shein X collections. The brand awarded 10 million Shein points throughout the event on its mobile app.

Dive Insight:

The livestream fashion show follows Shein’s efforts to reach a broader base of customers. Last month, Shein and Forever 21 announced a deal to distribute each other’s products through both companies’ digital and retail operations. As part of the agreement, Shein holds a one-third interest in Sparc Group, a joint venture between Forever 21 parent companies Authentic Brands Group and Simon Property Group. 

“Shein was founded on the mission of making fashion accessible to all, and through Shein Live: Front Row, we’re excited to give all fans the opportunity to experience fashion from prime first row seating,” George Chiao, president of Shein U.S., said in a statement.

The fast-fashion retailer is also growing its international presence. The Singapore-based retailer reported 1.12 billion pounds in revenue, roughly $1.36 billion at current exchange rates, between September 2021 and December 2022 from its U.K. division alone, according to a Companies House filing.

But as it continues to grow, Shein faces increasing scrutiny. In May, U.S. Congress members wrote letters to the CEOs of Nike, Adidas, Shein and Temu asking for more details about garment materials sourcing. The U.S. House Select Committee on Strategic Competition between the United States and the Chinese Communist Party sought information about Shein’s compliance with the Uyghur Forced Labor Prevention Act, which prohibits the sale of products from the Xinjiang region of China.

Amid criticism over Shein’s operations, the retailer has devoted more capital to ESG initiatives. Shein this month announced plans to allocate $85 million over five years to support the "people" pillar of its environmental, social and governance efforts. Fifty million dollars of the new funds will be directed toward aspiring designers, and $35 million will flow to “women, young people and the underprivileged,” per the company.  Those funds are in addition to the company’s previous $70 million commitment to its manufacturing supplier community, for a total of $155 million in funding across five years.

Ed note: This story has been updated to include numbers regarding viewership during the event.

Dive Brief:

• Target announced on Tuesday it’s closing nine stores in four states, effective Oct. 21. The retailer said it has been unable to manage theft and organized retail crime at these locations, which threatens the safety of store employees and customers, and contributes “to unsustainable business performance.”
• Three stores will close in the San Francisco and Oakland, California, region; three will close in the Portland, Oregon, area; two are closing in the Seattle area; and one store is closing in New York City.
• Target said it decided to close these locations after investing in more security staff, using third-party guard services and implementing theft-deterrent tools didn’t work. The retailer said it continued “to face fundamental challenges to operating these stores safely and successfully.”

Dive Insight:

Months after facing backlash from all sides on how it responded to the controversy over its annual Pride Month celebration and merchandise, Target is again choosing to back down in the face of what it describes as another set of threats to employee and customer safety.

During the company’s Q2 earnings call, CEO Brian Cornell said that in the first five months of the year, stores saw a 120% rise in theft incidents that involved violence or threats of violence. Target said it takes store closing decisions “very seriously” and takes that step only after trying to address issues that negatively affect business performance and the customer experience.

“We know that our stores serve an important role in their communities, but we can only be successful if the working and shopping environment is safe for all,” the company said. Target thanked the employees at the stores slated to close and said all eligible employees at those locations will have an opportunity to transfer to other Target locations.

Shrink could cut Target's profits this year by more than $500 million, the company said in May. Nationwide, shrink — which includes losses due to theft, as well as operational or process mistakes and systemic errors — accounted for $112 billion in losses last year, according to a National Retail Federation report released Tuesday. Similarly to previous years, NRF reported that nearly two-thirds of retail shrink was due to theft. In the past year, the NRF said the metro areas of Los Angeles; San Francisco and Oakland, California; Houston; New York and Seattle were most affected by organized retail crime.

In its announcement, Target also detailed its ongoing efforts to combat theft and organized retail crime. 

Its in-store strategies include using locking cases for theft-prone categories of merchandise and investing resources in training in-store leaders and security staff “so they can protect themselves and de-escalate potential safety issues associated with organized retail crime incidents.” Technology-related efforts to fight theft include tracking organized crime groups and expanding how data is monitored and analyzed to identify fraudulent activity. 

“While we will continue to make meaningful investments throughout our business, we cannot solve this issue on our own,” Target said. 

Earlier this month, California Gov. Gavin Newsom committed $267 million to fight retail theft. The funding will support new police units and law enforcement task forces and the installation of advanced surveillance technology.

California’s move signals the seriousness of the issue and other states may follow that lead, Appriss Retail CEO Michael Osborne said in an email to Retail Dive. Appriss Retail uses artificial intelligence to analyze data that can help identify loss, fraud or abuse of return policies. Understanding the true impact of theft on retailers can be challenging, though.

“The exact sources of loss across sectors differ based on factors such as the type of merchandise sold, the size of retail locations, or whether they sell online,” Osborne said. “Additionally, many retailers don’t include the more nuanced types of losses, like ecommerce or supply chain theft, within their shrink calculation, making direct comparisons even more challenging.”

UPS announced its surcharges for the 2022 peak season on Friday, which will impact high-volume shippers expecting elevated home delivery demand during the holidays.

Beginning Oct. 30, customers billed for more than 20,000 packages any week after October 2021 will see a “Peak/Demand Surcharge” applied to certain UPS Air Residential, Ground Residential and SurePost shipments, according to the carrier. The fee will be active until Jan. 14, 2023.

The surcharge is applied on a weekly basis to all packages over 105% of the baseline volume for each service. The baseline volume is the customer's average weekly volume from June 5 through July 2 for the applicable shipping service. But UPS will use the average weekly volume from Sept. 4 to Oct. 2 instead if it is less than 80% of the June-July period's volume.

UPS will charge shippers the highest applicable surcharge they reach. For example, if a customer ships 175% of their baseline shipping volume for the Ground Residential service in a given week, they will be charged $2 for all packages that go above 105% in baseline volume.

UPS is also raising its per-package surcharges for additional handling (from $3.50 to $6.50), large packages ($40 to $70) and packages in excess of its maximum shipping limits (no charge to $400) on qualifying customers. The new prices for these surcharges are active from Oct. 2 until Jan. 14, 2023.

UPS' surcharge reveal follows fellow parcel delivery giants FedEx and the Postal Service, which both announced cost hikes of their own. Amazon is also rolling out its inaugural peak season fee on its fulfillment services for third-party sellers.

Inflation has been the story of the summer for any retailer selling discretionary goods, as higher prices on essentials have led to swift, stark shifts in shopping behavior. But retail sales in July — up nearly 10% since last year and a little better than flat since June, according to numbers from the Commerce Department — indicate that consumer spending has held up despite record inflation.

It helped that gas prices last month began edging down, leaving more cash in people’s wallets. Plus the numbers look better than they really are because the federal government doesn’t adjust them for inflation. But they do include the first real gain in volume — actual goods sold — in three months, according to research from Wells Fargo economists.

“Overall, demand is not falling off a cliff and our view that retail is landing softly remains,” GlobalData Managing Director Neil Saunders said in emailed comments.

Natalie Kotlyar, national leader of the retail and consumer products practice at consultancy BDO, said she is not surprised to see retail holding steady in recent months. But there are also signs that retailers will be dealing with a changed consumer for the foreseeable future, she and others say.

”There is an interesting phenomenon going on right now with inflation rates increasing and customers continuing to spend on discretionary goods,” Kotlyar said in emailed comments. “Summer vacations are certainly a driver of this, as are the relatively strong performances of off-price retailers. Consumers are finding a way to get the products they want and need for a price they are comfortable paying. This tells me that while consumers are willing to spend, they’re savvy – they are looking for savings when and where they can.”

That includes waiting for markdowns and switching brands, according to researchers at rewards marketing platform Blackhawk Network, who found that 46% of consumers they surveyed are buying more things on sale, and 22% say they’re buying less from their favorite brands.

Shoppers were careful in July, foregoing purchases, especially bigger-ticket items, per GlobalData research. And they went online, where they could easily find the best deals and conserve gas by staying home. While e-commerce growth had been ebbing this year as shoppers returned to stores, in July online sales rose nearly 30% from a year ago.

The question for retailers as the holidays loom is whether consumers’ fragile strength can hold. Wells Fargo economists Tim Quinlan and Shannon Seery said in a research note Wednesday that their staying power should last into Labor Day, but that once kids return to school and bills come due, households will begin to tighten their belts.

“Even as inflation is showing signs of moderating, it will do so only slowly,” they said.

If so, consumer budgets will shrink again as winter approaches and energy bills rise, according to GlobalData’s Saunders. The traditional autumn lift in apparel sales may be elusive this year, in part because winter and fall clothing tends to be more expensive than summer garb, he said.

Consumer retrenchment has been happening at the same time that retailers’ own expenses are up, pressuring margins and profits, Saunders also warned. That has already led to dramatic inventory adjustments and even layoffs in the industry.

“Equally, with lower volumes coming through, the spoils are being spread more thinly which is why there is now quite a variance in sales performance between various retailers,” he said. “Unfortunately, we see both these trends continuing to be in play until at least the year end.”

The consumer predicament that has scrambled demand and disrupted loyalty will be testing retailers as they begin to merchandise their stores for their all-important back-to-school and holiday seasons.

“The volatile economy could put a halt to consumer spending ahead of these critical times for retailers,” BDO’s Kotlyar said. “Alternatively, retailers may find that sweet spot with their customers where they’re aligned with product availability and cost, and then the sales will come and the margins will follow.”