Shoppers Are Pumped Up For The Holidays. After That, All Bets Are Off

Despite inflation and geopolitical jitters, this holiday sales season is forecast to be a fairly strong one, with post-Thanksgiving shoppers kicking things off by crowding malls and clicking away online.

But when the holidays are over, the party is typically over for retailers. And the letdown might be particularly hard when the new year rolls in, retail experts say, as consumers continue to reckon with lingering uncertainty caused by months of high inflation and feelings of economic malaise.

“Retailers are cautiously optimistic since there has been a slowdown of inflation, and a lot of the supply chain issues have been worked out,” said Babson College professor of marketing Lauren Beitelspacher, a specialist on holiday shopping and other aspects of retail sales.

That doesn't mean consumers are similarly optimistic, however, and that will probably pose new challenges for retailers once the holidays are over.

“People have it in their heads that stuff is really expensive right now,” Beitelspacher said. “And so they are a little bit grumpy.”

That grumpiness has surfaced in a number of new surveys. The University of Michigan Index of Consumer Sentiment came in at 61.3 in November, down from 63.8 in October, marking the fourth consecutive month of declines.

The index was even lower a year ago during the worst of the recent bout of inflation, but it remains historically depressed — nearly as low as it was in the aftermath of the Global Financial Crisis and well below nearly every year from 2014 to the onset of the pandemic.

After a brief uptick in sentiment in 2021, inflation made consumers glum again.

About two-thirds of Americans said their household expenses increased over the year, according to an October AP survey, while only 1 in 4 said they enjoyed an increase in income over the same period. Roughly 80% of respondents said their household debt is the same or higher as it was a year ago, and nearly half said their savings declined.

Even with all that on their minds, consumers hit stores and keyboards over the long Thanksgiving weekend and on Cyber Monday, but some behavior seems to have changed.

In most years, the focus of shopping during the days after Thanksgiving is gifts. This year, though, there has been a turn toward buying essentials as consumers take advantage of the discounts retailers are offering, according to Beitelspacher.

“That feels relatively new, even though we've heard in previous years about people self-gifting — buying themselves gifts during the time of year,” Beitelspacher said, adding that there is no doubt discounts are motivating today's shoppers, regardless of who they are buying for.

“Retailers are seeing customers across the spectrum become more choiceful and discerning, which includes buying closer-to-need,” TD Cowen analysts, led by Oliver Chen, said in an emailed note regarding Black Friday.

On average, 55% of Thanksgiving weekend purchases were driven by sales and promotions, up from 52%, according to the National Retail Federation's survey of consumers during the Thanksgiving sales period. Only about two-thirds of consumer holiday spending was on gifts.

Still, spending is relatively stable. Over the five-day Thanksgiving weekend, including Cyber Monday, Americans spent an average of $321.41 on holiday-related purchases, slightly down from 2022, when the total was $325.44, the NRF reported.

The NRF forecast just ahead of holiday spending season — the months of November and December — was that U.S. consumers would spend between 3% and 4% more than the same period in 2022, somewhere between $957.3B and $966.6B.

Beyond that, the picture is hazier. The direction of consumer spending, especially in the post-holiday period, is largely dependent on inflation and how inflation is felt, Beitelspacher said. If consumers remain grumpy after the holidays, retailers could feel the impact in January and February — and more acutely than in previous years.

“I do think that there will be a bigger slowdown in January and February, but it's hard to predict exactly how impactful it will be,” she said. “Retailers prepare for that. They try to manage their remaining inventory that time of the year, and I think their hope is that they'll have such a good shopping season in December that there isn't a lot of inventory to deal with.”

Inflation is likely to have a lingering impact on retail sales after the excitement of the holiday season.

“Consumers' ability to spend is diminished,” said ToolsGroup CEO Inna Kuznetsova, a specialist in supply chains. “What this leads to is certain changes in what consumers buy and how they buy. For now, they're looking for the discount.”

Discounters would seem set to benefit most from that trend, Kuznetsova said, but things aren't quite that straightforward in the retail world.

“The retailers who benefit the most are those who have implemented sophisticated systems for inventory management,” Kuznetsova said. “Retailers like Best Buy and Nike are doing very well in this environment despite not being discounters.”

That is because sophisticated inventory management allows retailers to pivot toward consumer demand for discounts while also maintaining the right volume of offerings at more standard prices. One might think that all major retail chains have mastered that trick, but some are better at it than others, Kuznetsova said.

There is also a case for cautious optimism in the post-holiday environment, experts said. One reason is that U.S. consumers love to shop.

“Americans aren't necessarily flush with disposable capital, but they seem to be allocating whatever they do have for retail spending,” CREXi Chief Operating Officer Eli Randel said. “That's not across the board. But popular retail concepts are continuing to do well.”

Another cause for optimism, at least for physical retailers, is that regardless of how much e-commerce grew during the pandemic, brick-and-mortar has managed to make a comeback, Randel said. Of the 200 million-plus U.S. consumers shopping over the Thanksgiving holiday, 121.4 million of them shopped in physical stores, according to the NRF report.

“The American consumer has adopted e-commerce, and it's an important part of our economy,” Randel said. “However, I don't envision a time when consumers abandon brick-and-mortar. 

“Traditional retail is showing a lot of resilience,” Randel added. “If you go to a nice shopping center with a good mix of retailers and a good location, it's still pretty dang hard to find a parking spot.”