US shoppers will still spend money as long as retailers give them a reason

Despite months of unrest about the state of the economy, Americans remain willing to spend money on all kinds of goods. But they make it clear that retailers need to work harder than they have in the past two years to make them win their dollars.

Retail sales rose 1.3 percent in October, the Commerce Department said on Wednesday. That was higher than expected and a promising reflection of consumer confidence during the holiday shopping season, especially as the near-record inflation rate felt by Americans this year has eased somewhat.

But that spending was boosted by the earlier-than-usual holiday deals that tempted shoppers last month. For the first time, Amazon held a Prime Day in October, filling the site with discounts in addition to its usual time in June. Target rolled out its Deal Days. And Kohl’s was running promotions on toys all month long. After last year’s holiday season, which saw few traditional doorbuster sales, it seems many shoppers are looking for discounts before buying.

“Overall, for the past two years, retailers could price products wherever they wanted and consumers would buy them,” said Mike Graziano, a senior consumer products analyst at RSM US, an audit, tax and advisory firm. “Now consumers are looking for offers the way they do during the holidays, and consumers are taking advantage of that, and October was a clear example of that.”

Holiday promotions were a major driver of retail sales in October, he said. Categories such as online spending, furniture and health and personal care all experienced an increase in demand in October compared to September. Spending at clothing and sporting goods stores remained flat or fell, which could mean people have to wait until later in the season to make those purchases.

Target is an example of the importance that discounts have played. The company’s sales rose in early October, coinciding with a round of holiday promotions. But demand eased as those deals fell through, and October ended as the weakest month in the third quarter, the company said, after reporting results on Wednesday.

“Almost all of the slowdown was driven by our discretionary categories — apparel, home, and hardlines — as our guests became increasingly cautious about their spending in those categories at Target and the industry at large,” Michael Fiddelke, the company’s chief financial officer , said on a conversation with analysts.

Managers expect more of the same.

The National Retail Federation said this month it expected holiday sales to rise 6 to 8 percent from November to December, which is below the rate of inflation. With Black Friday just over a week away, businesses must quickly adapt to changes in shopping behavior.

This period is crucial, especially for department stores and specialty clothing chains, which spend much of their energy preparing for the high volume of sales they handle at the end of each year. On Thursday, Macy’s and Kohl’s will report their earnings, which will provide a glimpse into the department store chains’ relative financial health heading into the season.

For much of the pandemic, when shoppers spent freely and retailers worried about the supply chain, discounts were not often offered. Consumers had saved more money last year and spent it on refreshing their closets and upgrading their electronics after a year of sitting at home.

The spending spree came to an end this year, largely due to concerns about inflation. And with customers becoming more discerning about their spending, many retail executives have said they expect a return this year to the usual holiday deals that were missing from many stores last year.

“Last year was just an incredible year for any retailer, but especially apparel,” said Zachary Warring, equity analyst at CFRA. “Assuming that, it’s going to be a tough quarter for retailers.”

Public perception will also play a role. Retailers associated with value for money and good prices or who already have a frequent and loyal customer base are likely to do well in the coming months, Mr Warring said. For those not seen that way, the holiday season can be bumpier.

For instance, Walmart, which has long performed well with lower-income buyers, said Tuesday in announcing its strong third-quarter earnings that people earning more than $100,000 are increasingly shopping with them. The company has raised its full-year revenue and profit forecast.

All of this comes at a time when Americans of various income levels are looking for ways to save money, especially as trips to the grocery store and gas pump take a bigger bite out of their wallets.

This could make days like Black Friday and the days leading up to Christmas Day, which are known for deeper discounts, even more relevant to shoppers.

“You could see this concentration of sales if you have this big push around promotions,” said Michelle Meyer, chief economist at Mastercard. “It’s like a hit and miss of holiday spending based on promotions.”

It’s a pattern retailers should be aware of in the coming months.

“We’ll be watching it closely throughout the holiday season,” Target CEO Brian Cornell said during a call with analysts. “I really think it’s a by-product of a consumer who’s had higher costs throughout the year and is working with their budget, shopping very carefully, looking for value and recognizing that they have to start with basics before spending money. discretionary categories.”