Crunching inflation misses the shopping boom on “Black Friday”

The start of the Black Friday holiday shopping season is expected to bring particularly big discounts in 2022, but one challenge is finding consumers confident enough to spend.

Chronic inflation in the world’s largest economy in recent months has created uncertainty about this year’s holiday season, which begins the day after the Thanksgiving holiday on Thursday.

A year ago, retailers faced product shortages in the wake of shipping backlogs and factory closures related to Covid-19. To avoid a repeat, the industry has frontloaded its holiday imports this year, leaving them vulnerable to oversupply at a time when consumers are short.

“Lack of supply was yesterday’s problem,” said Neil Saunders, managing director of GlobalData Retail, a consulting firm. “The problem today is that there are too many things.”

Saunders said retailers have made progress in recent months in reducing excess inventories, but that oversupply has created eye-watering conditions for bargain hunters in many categories, including electronics, home improvement, and apparel.

“But more than that now,” Jewell Henderson always said as she walked out of an Old Navy store in New York with four bags of the stuff.

She said the clothing chain’s prices were “very good”. “If it’s not for sale, I don’t really need it.”

High costs of gasoline and household staples like meat and grain are an economy-wide problem, but they don’t burden everyone equally.

“Low incomes are certainly the hardest hit by rising inflation,” said Claire Lee, senior analyst at Moody’s. “People have to spend on essential items.”

– Savings dwindling –

Leading forecasts from Deloitte and the National Retail Federation expect a single-digit percentage increase, but it likely won’t exceed the rate of inflation.

The consumer price index is up about eight percent year-over-year, which means a similar increase in holiday sales will equate to lower volumes.

American shoppers have been resilient throughout the many phases of the Covid-19 pandemic, often spending more than expected, even when consumer surveys suggest they are in a gloomy mood.

Part of the reason was the unusually strong savings situation, as many families were making government pandemic aid payments at a time of low consumption due to Covid-19 restrictions.

But that cushion is starting to wear off. After hitting $2.5 trillion in excess savings in mid-2021, the benchmark fell to $1.7 trillion in the second quarter, according to Moody’s.

Consumers with incomes of less than $35,000 were hit the hardest, as their excess savings fell nearly 39% between the fourth quarter of 2021 and mid-2022, according to Moody’s.

This drop coincided with the rise in credit card debt shown in the Fed data and described by the chains which also indicated more purchases made with food stamps.

“We’re seeing constant pressure,” said Michael Witinsky, CEO of Dollar Tree, a discount retailer that’s seen “shifts” in shoppers, “of being very consumer and focused on needs to try to make that budget work and stretch throughout the month.”

– Mixed picture –

Earnings reports from retailers in recent days have painted a mixed picture of consumer health.

The target stood on the lower side of the ledger, indicating a sharp drop in shopping activity in late October, which could herald a weak holiday season.

CEO Brian Cornell said the big box chain expects a “very promotional” holiday season.

“We have a consumer dealing with very stubborn inflation quarter after quarter now,” Cornell said on a conference call with analysts.

“They shop very carefully on a budget, and I think they look at the discretionary categories and say, ‘Okay, if I’m going to buy, I’m looking for a great deal and a great value. “”

But Lowe’s, another large US home improvement chain, offered a very different view, describing the same period of late October as “robust” and seeing no evidence of consumer decline.

“We don’t see anything that looks like a regression or regression for consumers,” said Marvin Ellison, CEO of Lowe’s.

Consumers like Charmaine Taylor, who frequently check airline websites, are staying vigilant

Taylor’s travel ambitions have so far been thwarted by skyrocketing airfare. Taylor, who works in childcare, isn’t sure how much she’ll be able to spend on a family this year

“I try to give them some little gifts,” Taylor said in a park in Harlem earlier this week. “I don’t know if I’ll be able to. Inflation is hitting hard.”

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