High Inflation May Reduce Holiday Retail Sales

Holiday retail shopping this year may be underwhelming as surging consumer prices take a bite out of consumer pocketbooks.  As a result, U.S. retailers face a rough holiday season as high inflation forces consumers to choose essentials over discretionary purchases.  According to S&P Global Market Intelligence, after adjusting for inflation, holiday sales are likely to fall -1.2% y/y, which would be the first decline since 2009.

Many big-box retailers are already showing signs of strain, with Target (TGT) and Kohl’s (KHS) lowering their sales estimates.  Even Walmart (WMT), which posted strong U.S. comparable same-store sales gains last quarter, is expecting a slowdown.  A buildup of inventory has forced retailers into widespread markdowns, hurting company profits.

A holiday trends survey from the researcher RetailMeNot shows that higher inflation is curbing gift purchases.  According to the survey, more than half (51%) of the 1,000+ respondents say they are coping with soaring inflation this year by purchasing fewer gifts.  Polled shoppers said they plan to spend $725 for the holidays this year, down -8% from last year.  RetailMeNot’s data show that 53% of respondents plan to shop on Black Friday, and 55% will shop on Cyber Monday.  Many consumers have already started holiday shopping, with 52% taking advantage of pre-Black Friday deals.

E-commerce holiday sales growth is also seen as slowing.  Alix Partners said retailers’ digital sales remain higher this year than in 2019, but growth has decelerated from the past two years.  Consumers are still using online channels to get a sense of what deals are available, but that won’t be the only option this year as more shoppers flock to brick-and-mortar stores with the easing of the pandemic.  Telsey Advisory Group said brick-and-mortar sales will likely get a big boost this year because “we have not had this type of in-person shopping for two years during the holiday season” due to Covid. 

According to data from Adobe, overall spending this holiday season is seen growing +2.5% from a year ago, compared with +8.6% growth last year and +32% in 2020.  However, those figures aren’t adjusted for inflation, meaning that sales could be down by volume given that consumer prices are up +7.7% from a year ago.  Telsey Advisory Group said success for retailers this holiday season will be determined by which companies can maintain discounts and still come out profitable.

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