Home Featured Holiday Spending Pegged to Increase This Year – WWD

Holiday Spending Pegged to Increase This Year – WWD

Holiday Spending Pegged to Increase This Year – WWD

For the upcoming holiday shopping season, consumers are expected to spend more than they did last year as inflation and interest rate hikes shape how and where they shop. According to Mastercard SpendingPulse, U.S. retail sales (excluding automotive) are pegged to increase by 7.1 percent on a year-over-year basis — which is less than the sales gain seen last year.

The Mastercard report, along with several other separate reports, reveals a consumer mindset that is more cautious and frugal even as national news paints a more optimistic picture.

“Economic headlines are becoming more positive than just a few months ago,” authors of the Mastercard report noted. “There has been inflation relief, continued consumer spending with jobs holding strong, and the Fed remains laser-focused on combatting inflation, with more rate hikes to come.”

The holiday spending outlook is framed by recent government data that shows strong gains in consumer prices. The Labor Department said August’s pricing data on food was up 11.4 percent, while energy costs were up 23.8 percent. Pricing on apparel, footwear and other fashion-related categories was up 5.1 percent year-over-year. And it’s clear that inflationary conditions are impacting consumer behavior.

In the Mastercard report, which measures in-store and online retail sales across all forms of payment, Michelle Meyer, U.S. chief economist at the Mastercard Economics Institute, said this holiday season, “consumers may find themselves looking for ways to navigate the inflationary environment – from searching for deals to making trade-offs that allow for extra room in their gift-giving budgets.”

But Meyer was quick to note that new job creation, “rising wages and lingering savings should have many consumers ready and able to spend.”

However, in a consumer survey report by Project44, the supply chain visibility platform, the firm found that 78 percent of consumers polled said they “plan to spend at least 10 percent less this holiday season due to inflation.” And when asked about their top concern this year, pricey goods came in at number one, followed by shipping costs and out-of-stock items/low inventory.

The survey was based on 1,500 shoppers in the U.S., the U.K. and Germany. “Shoppers are feeling the pain of inflation and looking for ways to save money while still receiving purchases on time,” said Carson Krieg, head of industry solutions and strategy at Project44. “To win over shoppers, brands need to be armed with data and have a strong supply chain strategy prepared to address consumer concerns. Many retailers still have not developed and deployed a holiday shipping plan of action, and these brands are risking falling behind amid peak season.”

From a sustainability perspective, the survey found that 56 percent of respondents said they “would shop at local and small-owned businesses to reduce emissions … but only one-third would elect for slower delivery or ship to a store for pickup to reduce their carbon footprint.” And 16 percent of those polled said they would pay more for a greener brand this year.

Meanwhile, Mastercard said this year’s holiday sales forecast needs to be seen within the context of the 2021 holiday shopping season, which the company defines as Nov. 1 through Dec. 24. That season reflected a resurgence for retailers as sales jumped 8.5 percent. Sales were driven by “pandemic-induced pent-up demand, excess savings and supply chain issues,” which sent shoppers “stocking their carts to secure gifts.”

This year, Mastercard said the holidays are expected “to shape up to be yet another positive retail season,” but with different key trends to watch. This includes “fashion-forward gifting,” which, Mastercard said, is a consumer desire to dress up their wardrobes and follows “nearly two years of loungewear and athleisure.” Shoppers are expected to spend 4.6 percent more on fashion apparel this year compared to last, with luxury goods spending up 4.4 percent.

But due to inflation, consumers are shopping earlier and are seeking bargains. Mastercard said the holiday season’s retail growth “is expected to be pulled forward in October as consumers hunt for early deals. Key promotional days like Black Friday weekend are also expected to make a strong return along with Christmas Eve, which falls on a Saturday, slated to be among the biggest days for retailers and last-minute shoppers.”

In a separate consumer behavior survey from Jungle Scout, researchers at the company said 30 percent of respondents said they’ve already begun buying for the holiday, while 70 percent said they plan to do so before Thanksgiving. The company also noted that 32 percent of shoppers expect to spend less this year than they did in 2021.

Mike Scheschuk, chief marketing officer at Jungle Scout, said upcoming shopping events such as a second Prime Day, Black Friday, and Cyber Monday “offer consumers the best deals ahead of the holidays. With these events on the horizon, retailers are listening to customers’ inflation fears and must be willing to adapt their strategies. They can maximize growth and retain customers by managing inventory, being strategic with price increases, and understanding the needs of their customers.”

Authors of the Mastercard report said as inflation impacts consumer wallets, “bargain hunting is expected to be in full force this holiday season. From deals and discounts to price monitoring and price matching, consumers are looking to stretch their dollars and get the most bang for their buck.”

With online shopping, which is the easiest way to comparison shop, Mastercard said e-commerce sales are expected to increase 4.2 percent year-over-year “despite significant growth last year.”

Meanwhile, in-store experiences are expected to lure shoppers into stores and increase sales by 7.9 percent. “From the return of holiday doorbusters to new brick-and-mortar collaborations, retailers are aiming to boost holiday spirits by driving consumers into stores,” authors of the Mastercard report said, noting that while e-commerce “has seen marked growth in recent years, in-store spending made up more than four-fifths of retail sales from January through August 2022.”

Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks Incorporated, said that this holiday retail season “is bound to be far more promotional than the last. Easing supply chain issues coupled with the rapid shift in consumer spending trends and over-ordering inventory have left retailers in an interesting position ahead of the holidays.”

Sadove said retailers that “were able to clear past merchandise and accurately forecast inventory needs will be the best positioned for growth.” And merchants who can differentiate with product and merchandising might also have an edge this year. In a separate report from Escalent, researchers at the firm said due to economic conditions, 31 percent of respondents said they “will be looking for different types of gifts compared to what they normally buy.”

Looking at the bigger macroeconomic picture, Mastercard said higher interest rates will have an impact on the economy and how shoppers spend. The company said higher rates could force consumers to curb spending on big-ticket items, while the higher costs of borrowing money could cool the credit market.

Other impacts include increases in the cost of public debt, which is often used for municipal projects and infrastructure. Higher rates also can weaken the competitiveness of U.S. manufacturers while slowing overall business investments.