The Supply Side: Early holiday forecast predicts muted sales growth

Consumer surveys are drawing the same conclusions around holiday sales expectations this year. Deloitte’s annual holiday retail forecast predicts year-over-year sales will increase 4% to 6% for the holiday season, well below a 15.1% increase in the year-ago period.

According to the U.S. Census Bureau, holiday sales totaled $1.39 trillion last year. Overall, Deloitte projects holiday sales will total $1.45 trillion to $1.47 trillion during the 2022 holiday period. Deloitte said e-commerce sales rose 8.4% in 2021, totaling $231 billion. The prediction for e-commerce sales increase ranges from 12.8% to 14.3% compared with last year’s period.

The lower projected growth for the upcoming holiday season reflects the slowdown in the economy this year, noted Daniel Bachman, Deloitte’s U.S. economic forecaster.

“Retail sales are likely to be further affected by declining demand for durable consumer goods, which had been the centerpiece of pandemic spending,” Bachman said. “However, we anticipate more spending on consumer services, such as restaurants, as the effects of the pandemic continue to wane.”

Deloitte also noted that as inflation weighs on consumer demand, there will likely be a shift in how shoppers spend their holiday budget in the upcoming season.

“Retail sales are set to increase as a result of higher prices, and this dynamic has the potential to further drive e-commerce sales as consumers look for online deals to maximize their spending,” said Nick Handrinos, vice chair of Deloitte. “Retailers across channels who remain aligned with consumer demand and offer convenient and affordable options can be well positioned for success this season.”

The MasterCard Spending Pulse survey predicts holiday sales will rise 7.1% from last year. MasterCard expects the holiday will be cheerful for many retailers but expects sales growth to decrease from the 8.5% gains reported a year ago.

“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,” said Michelle Meyer, U.S. chief economist, Mastercard Economics Institute.

“New job creation, rising wages and lingering savings should have many consumers ready and able to spend.”

Coresight Research also recently surveyed consumers and found that 66% of consumers expect inflation to impact their gifting budget this holiday season negatively.

“Rising prices are making the majority of consumers wary about holiday gift spending,” said Steven Winnick, senior analyst with Coresight Research.

Coresight predicts gift spending will grow 4% this holiday season and reach $468.3 billion. The average shopper is projected to spend $580 this year. The survey found that 16% said they would spend less than $300 on holiday gifts, and around 58% said they plan to spend between $500 and $700 on them. The remaining 26% said they plan to spend more than $700 this year.

Coresight and MasterCard each found that shoppers plan to begin making holiday purchases earlier this year given the rising prices and need to stretch the spending out. Coresight found that 25% said they plan to start their holiday shopping in September, and 30% said they would begin in October or sooner. That’s 55% of shoppers who get an early jump on the holiday shopping season this year, compared to 46% a year ago.

Winnick said it’s not just the early shoppers extending the season because 32% said they would shop right up to Dec. 24, up from 16% a year ago. He said shoppers in all income demographics plan to use a budget and shop for the best-perceived values over the next four months.

MasterCard also reported that some of the holiday season’s growth is expected to be pulled forward in October as consumers hunt for early deals. Meyer said critical promotional days like Black Friday weekend are also likely to make a strong return, along with Christmas Eve, which falls on a Saturday this year and is expected to be among the most significant days for retailers and last-minute shoppers.

Coresight said pricing would primarily influence gift purchases this holiday season. Pricing and discounts will influence gift purchase decisions the most as 93% of respondents listed price and discounting as their primary objectives when shopping for holiday gifts.

Winnick also said the data indicate online shopping continues to be robust despite a rebound in retail store traffic. He said 42% of respondents expect to spend between 40% and 60% of their holiday budget online this year, up from 28% who said that a year ago. He said a bifurcation is underway between lower-income shoppers and higher-income consumers. Those at the lower end of the income spectrum plan to spend more of their holiday budget in stores, with 26% of shoppers spending $700 or more planning to spend up to 80% of their budget online.

The MasterCard survey also expects e-commerce sales to increase despite significant growth in the 2021 holiday season, as it remains a convenient way for consumers to check prices in real-time.

Meyer said in-store experiences are also expected to draw shoppers into stores. In-store retail sales are expected to be up 7.9% year-over-year. While e-commerce has seen significant growth in recent years, in-store spending made up more than 80% of retail sales from January through August 2022, MasterCard reports.

Coresight’s survey found gift cards top the items consumers most want to receive this year at 60%. On the gifting side, 56% said they plan to give gift cards this holiday. The caveat is that most gift card sales come in after the holiday and do not help holiday sales margins.

“This holiday retail season is bound to be far more promotional than the last,” said Steve Sadove, senior advisor for Mastercard. “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. Retailers able to clear past merchandise and accurately forecast inventory needs will be the best positioned for growth.”

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.