Amazon held what amounted to an extra Prime Day in October and covered its site with deals. Best Buy rolled out Black Friday sales last month. And on Friday, Kohl’s entered the first 200 people to walk into each of its stores in a sweepstakes, with prizes including gift cards to Sephora and a family trip to a Legoland resort.
With the arrival of the all-important Christmas shopping season, retailers are not only competing with each other to attract customers. They also compete against the clock.
For now, Americans are spending, buoyed by pandemic-era savings and a red-hot job market. But at the same time, prices are rising at their fastest pace in decades and the Federal Reserve is trying to contain them by raising interest rates. That attempt to curb demand by making borrowing more expensive in turn makes consumers pessimistic about the economy. And a recession is a distinct possibility.
Retailers, some of which are overstocked, want to sell as much as possible while consumers are still pulling their wallets. So they bombard customers with discounts, hoping to entice them to buy before an economic slowdown triggers another shift in behavior.
Whether retailers succeed will have far-reaching consequences. Billions of dollars are at stake, and companies will be watching the outcome closely as they make hiring and investment decisions for the new year.
“We are now going to spend a lot of time executing on our plan, getting through the holiday season and then assessing the consumer and the overall retail landscape as we look to 2023,” Target CEO Brian Cornell said during a call with analysts this month. .
More generally, retail sales during the Christmas shopping season may provide clues to how the economy will develop in the coming weeks and months.
“For the economy as a whole, I think it’s going to be really important to look at what the consumer is doing because that’s really going to be your most important indicator,” said Lydia Boussour, an economist at EY-Parthenon. “It’s the main driver of growth.”
Forecasters generally expect consumer spending, which accounts for about 70 percent of total economic growth, to remain strong in the fourth quarter, largely thanks to household savings. Collectively, by the middle of this year, Americans were still sitting on about $1.7 trillion in additional savings accrued during the pandemic, based on Fed estimates, thanks in part to government assistance.
But in September, the most recent month for which calculations were available, Americans saved just 3.1 percent of their after-tax income, less than half the share before the pandemic. And poorer Americans are seeing their savings dwindle even faster than richer ones.
Meanwhile, credit card balances rose 15 percent in the third quarter compared to a year earlier, according to the Federal Reserve Bank of New York. That was the biggest increase in more than two decades as consumers increasingly rely on credit, even as borrowing costs rise.
And a University of Michigan study this month showed a sharp drop in “consumer sentiment” — a measurement of how people feel about the economy and their financial situation. Even as consumers continue to make purchases, Ms. Boussour says, “they feel depressed about the overall economic situation and will become increasingly reluctant to spend.”
Retail sales rose 1.3 percent in October, more than expected as shoppers snapped up holiday deals earlier than usual. Some major retailers, including Walmart and Home Depot, reported strong third-quarter earnings, supported by sales of less discretionary goods such as groceries or items related to home renovation and DIY projects. “Households are still spending because they can,” said Aneta Markowska, chief financial economist at investment bank Jefferies. “I still think there’s a lot of uncertainty about next year because obviously the Fed has been raising rates very aggressively this year and we haven’t really felt the effects yet.”
But several retailers said they saw demand for their products decline during the month, and when customers bought something, they seemed to be motivated by sales. Some companies have lowered their financial forecasts or outright refused to provide forecasts for next year to avoid being caught flat-footed.
This is not how the end of this year should have been. For two holiday shopping seasons, retailers struggled against pandemic disruptions. With the virus restrictions and supply chain grunts that defined these periods largely abating, retailers expected something of a return to normal.
Instead, retailers are trying to avoid a likely economic slowdown.
To entice bargain hunters and move unwanted supplies, many companies are promoting “value,” offering deep discounts and low prices more than last year, even as labor costs remain high. Many started their holiday blitzes early in hopes of kick-starting sales. Target held deal days in October and Old Navy launched a “Sorry, Not Sorry” holiday campaign. “Value clearly matters to everyone,” Corie Barry, Best Buy’s CEO, said during an earnings call last week.
At JC Penney, stores reverted to 5 a.m. doorbusters on Black Friday, promoting “pre-inflation prices” for items like Instant Pots, hair straighteners, and jackets.
Jeff Gennette, the CEO of Macy’s, said a feature on the website that allows users to view gifts from $15 to $100 seemed particularly enticing to shoppers.
“If you have an item that competes with the competitor, and you have a higher price, you have to make those adjustments,” he said.
Retailers try to remove all obstacles between a customer and a potential purchase. Jill Timm, Kohl’s chief financial officer, said the chain offered more personalized offers to shoppers, as well as clearly outlining discount amounts on certain items to avoid confusing customers “because they had to count”.
Kohl’s “really makes sure that the offers we make are meaningful for the customer to guide their behavior,” said Ms. Timm.
Signaling value is part of the overall strategy of Primark, an international clothing retailer, looking to expand its presence in the United States.
At a newly opened store in a shopping mall in Garden City, NY, Primark executives pointed to large signs advertising $11 hoodies, $4 biker shorts and $20 for a baby blue bag featuring Stitch from the Disney movie “Lilo and Stitch” —and noted that a candle, at 90 cents with no holiday discount, costs less than at Walmart.
“It must be a very clear moment when you walk into the perception that there is amazing value throughout the store,” said Kevin Tulip, president of Primark in the US.
Shoppers seemed price conscious on Black Friday and all weekend.
Retailers have reduced online prices for merchandise such as toys, electronics and computers, according to data released Friday by Adobe Analytics. Discounts for sporting goods and TVs were much higher this year than last year, according to data from Adobe, and clothing prices were slightly lower this year. The average discount for Black Friday deals in the United States was 30 percent, according to Salesforce. In 2019, Salesforce said, the average discount rate for Black Friday was 33 percent.
In-store sales on Friday were up 12 percent from last year, and e-commerce sales were up 14 percent compared to 2021, according to Mastercard SpendingPulse data released on Saturday. Those sales include not only spending in stores, but also in restaurants.
Still, not everyone was satisfied. On social media, people complained that Black Friday deals weren’t as substantial as they expected.
In San Francisco, 24-year-old Riz Gordon woke up at 6 a.m. Friday to go shopping with her parents and younger sister. Going to the shops that day is “a long family tradition,” she said, and they’d already picked out stockings and smaller gifts. But inflation was on their minds.
“Prices are very different from 10 years ago,” Ms Gordon said.
On Sunday, at a Target in Springfield, Illinois, DJ Baggerly, 69, made a quick trip for one last Christmas gift: a white knit blanket. She spent most of the weekend shopping online and going through her grandchildren’s wish lists.
Ms. Baggerly lives on a fixed income, and the higher prices for gas and groceries, she said, were “ridiculous”. When asked if she planned to cut back in the coming weeks, she said, “Oh yeah. I’m done.”
Ben Casselman and Kalley Huang reporting contributed.
