“People are so price conscious now,” said Taub, 29, who owns it Alexis Jae jewelry in Westchester, north of New York City. “Our volume has actually increased even though the average order value has decreased.”
Consumers have shown remarkable resilience in the face of stubbornness this year high inflation and rising interest rates. But cracks are showing, experts say, just as the holiday shopping season kicks off.
Retail sales data, consumer surveys and quarterly Earnings reports from some of the country’s biggest chains released this week point to a more subdued holiday shopping season than in 2021, when Americans shook off their pandemic stun. Consumers are more strategic — search for deals, compare prices and trade down — and reducing what they buy themselves.
“There’s a kind of underlying resilience that’s always there,” said Jonathan Sharp, managing director of the consumer and retail group at consulting firm Alvarez & Marsal. “I think right now, however, that hides the fact that the consumer is making it really difficult for retailers to make that consumer spending profitable.”
And while stores give these more savvy shoppers what they want, like previous sales and more discounts, he said, the catch is that “it’s actually eroding their margins.”
This was reflected in the latest federal data. On Wednesday, the Census Bureau reported that retail sales rose sharply 1.3 percent in October – although much of that spending went on necessities like petrol and groceries. Americans also spent more on furniture and even cars, but continued to cut back on technology like laptops and smartphones, as well as home appliances.
Meanwhile, third-quarter financial results from brands like Wayfair, Kohl’s and Target showed earnings slowed despite earlier and steeper periods Discounting to offload excess inventory. Target alone saw its net income plummet nearly 90 percent compared to the same three months last year.
“It’s sent a wave of concern through the sector and people are very wary of guidance and almost prepared for the worst,” said Neil Saunders, chief executive of analytics firm GlobalData. “…This notion that consumers are going to defy gravity and spend endless amounts of money is coming to an end, I think.”
Economists and policymakers are watching consumer spending — which accounts for more than two-thirds of the US economy — closely for signs of slowing demand. At the same time, the US Federal Reserve has attempted to rein in historically high inflation by raising interest rates in a way that doesn’t plunge the country into recession. The job market remained strong, which has helped consumers continue to spend.
But now even wealthier shoppers are feeling the strain and making more modest choices. A current consumer mood opinion poll by Alvarez & Marsal showed that 45 percent of consumers making $150,000 or more are concerned that products have become too expensive. That’s an increase of 10 percentage points since the spring.
Walmart and Marmaxx — its brands include TJX and Marshalls — were the winners this earnings season, Saunders said, nabbing higher-income folks who wanted better value when shopping. On Tuesday, Walmart announced that its third-quarter sales fell 8.7 percent; Investors cheered by boosts its share price by 6.5 percent.
Walmart’s appeal lies in its promise of “low prices every day” and convenience: Shoppers can buy groceries, a pair of shoes, and a new flat-screen TV all at the same time. It also has one of the largest retail spaces in the country.
Quarterly The umbrella company’s sales for TJX and Marshalls grew 3.3 percent from 2021 and a graduation 17.3 percent from the year before the 2019 pandemic, Saunders said.
“One of the reasons they have good growth potential is because they’re a value player,” he said. “You get clients trading down from other parts of the market.”
According to Alvarez & Marsal, 7 out of 10 consumers will change their spending this holiday season. Nearly 40 percent of shoppers said they would be spending less on gifts for themselves this year, 35 percent said they would be spending less on gifts for others, and about a quarter said they were giving gifts to fewer people.
“It’s a fairly general intention to forego gift-giving,” Sharp said.
Ivan De Leon, 23, said he’s moved away from his usual indulgences like a video game, new phone or other electronics. Money was tight this year, he said, so he’s been thinking about the holidays for months.
“Because it’s gotten more stressful and expensive over the past few years, I’ve just kind of downgraded myself rather than buying big lavish things on my travels, I might buy something like a small trinket…which tends to be a lot cheaper.” to be,” said De Leon, who is volunteering in Louisiana before moving to Georgia to work as a firefighter.
Consumers are also more aware. Unlike in previous years, Hassaan Qazi, 23, is setting a budget and making a plan for his gifts this year. Inflation is the driving factor, he said.
“I’ve always been blessed to have some level of money, so historically money wasn’t a big issue for me, so I’ve never been very disciplined about how I spent it,” said Qazi, a data analyst. “But this year I think, no, I actually have to be a lot more careful because there’s just so much money out there.”
His list contains new furniture for his apartment in New York and a MacBook Air for his mother. Unlike most consumers, who start their shopping well before Thanksgiving, Qazi plans to wait until Cyber Monday to back up the items.
The National Retail Federation and other retail groups are optimistic about the holiday shopping season. Earlier this month, the NRF forecast that retail sales would grow 6 to 8 percent in November and December. The figures do not take into account inflation. Even without an exact comparison, the fact is that “people are paying more for less,” Saunders said.
But industry experts agree people will still be shopping this year as consumers feel holiday spending is necessary.
“No one goes on vacation and says, ‘Hey, let’s be somber,'” Saunders said. “People want to have a nice holiday. They want to buy nice gifts. They want good food on the table. So people are still willing to spend, and they’re also willing to dig pretty deep to spend.”