“People are so price-conscious now,” said Taub, 29, who owns Alexis Jae Jewelry in Westchester, just north of New York City. “Our volume is actually up even though the average order value is down.”
Consumers have shown remarkable resilience this year in light of stubbornly high inflation and soaring interest rates. But cracks are starting to show, experts say, just as the holiday shopping season is ramping up.
Retail sales data, consumer surveys and quarterly earnings reports from some of the nation’s largest chains released this week suggest a more subdued holiday shopping season than in 2021, when Americans were shaking off their pandemic stupor. Consumers are being more strategic — hunting for deals, comparing prices and trading down — as well as cutting back on what they buy themselves.
“There’s a sort of an underlying resilience, which is always out there,” said Jonathan Sharp, a managing director with the consumer and retail group at the consulting firm Alvarez & Marsal. “I think at the moment, though, that masks the fact that the consumer is making it really difficult for retailers to make this consumer spending profitable.”
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And while stores are giving these savvier shoppers what they want, like earlier sales and more markdowns, he said, the catch is that “it is actually eroding their margins.”
This was reflected in the latest federal data. On Wednesday, the Census Bureau reported that retail sales surged 1.3 percent in October — though much of that spending went to necessities such as gas and food. Americans also spent more on furniture and even cars but continued to pull back on technology, such as laptops and smartphones, and appliances.
Meanwhile, third-quarter financial results from such brands as Wayfair, Kohl’s and Target showed that profits slowed despite early and steep discounting to offload excess inventory. Target alone saw its net income plummet nearly 90 percent from the same three months last year.
“It has sent a wave of concern through the sector, and people are being very cautious with guidance, and they’re prepared almost for the worst,” said Neil Saunders, a managing director at the analytics company GlobalData. “… This idea that consumers are defying gravity, and that they will go on spending at elevated levels ad infinitum, I think is coming to a close.”
Economists and policymakers closely track consumer spending — which makes up more than two-thirds of the U.S. economy — for any sign of diminishing demand. At the same time, the Federal Reserve has been trying to beat back historically high inflation by raising interest rates in a way that stops short of tipping the country into a recession. The labor market has remained strong, which has helped consumers continue to spend.
But now, even more-affluent shoppers are feeling the strain and making more modest choices. A recent consumer sentiment survey from Alvarez & Marsal showed that 45 percent of consumers earning $150,000 or more are concerned that products have become too expensive. That’s a 10 percentage-point increase since the spring.
Walmart and Marmaxx — its brands include TJX and Marshalls — were the winners this earnings season, Saunders said, swooping up those higher-income folks who wanted better value when shopping. On Tuesday, Walmart said its third-quarter sales popped 8.7 percent; investors cheered by powering its stock price 6.5 percent.
Walmart’s pull is its promise of “everyday low prices” and convenience: Shoppers can pick up groceries, a pair of shoes and a new flat-screen TV all at the same time. It also has one of the largest retail footprints in the country.
Quarterly sales at the umbrella company for TJX and Marshalls grew 3.3 percent from 2021 and a staggering 17.3 percent from pre-pandemic 2019, Saunders said.
“One of the reasons that they are good at growing is because they are a value player,” he said. “They are getting customers who are trading down from other parts of the market.”
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According to Alvarez & Marsal, 7 in 10 consumers are modifying their spending this holiday season. Almost 40 percent of shoppers said they will spend less on gifts for themselves this year, 35 percent said they will spend less on gifts for others, and about a quarter said they are giving fewer people gifts.
“It’s quite an across-the-board intention to retrench on gifting,” Sharp said.
Ivan De Leon, 23, said he has strayed away from his usual indulgences, like a video game, new phone or other electronics. Money has been tight this year, he said, so he has been thinking ahead for the holidays for months.
“Because it has gotten more stressful and expensive in recent years, I’ve kind of just more or less downgraded in terms of like, rather than buying big elaborate things in my travels, I’ll buy maybe like a little trinket … which tends to be a lot cheaper,” said De Leon, who is volunteering in Louisiana before moving to Georgia to work as a firefighter.
Consumers are also being more intentional. Unlike in years past, Hassaan Qazi, 23, is setting a budget and making a plan for his gift-giving this year. Inflation is the driving factor, he said.
“I’ve always been blessed to have a certain degree of money, so money was not a huge problem for me in the past, so I have never been very disciplined about how I spend it,” said Qazi, a data analyst. “But this year I’m like, no, I actually need to pay a lot more attention because there’s only so much money going around.”
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His list includes 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 secure the items.
The National Retail Federation and other trade groups are optimistic about the holiday shopping season. Earlier this month, the NRF forecast that retail sales would grow 6 to 8 percent this November and December. The figures do not account for inflation. Even without a precise comparison, it’s a fact that “people are paying more for less,” Saunders said.
But industry experts agree that people will still shop this year because consumers consider holiday expenses necessities.
“No one goes into the holiday saying, ‘Hey, let’s be gloomy,’” Saunders said. “People want to have a good holiday. They want to buy nice gifts. They want to have nice food on the table. So people are still prepared to spend, and they are prepared to dig quite deep to spend as well.”