Bargain-Hunting Shoppers Wait for Better Deals, Raising Concerns About Earnings on Black Friday
Black Friday sales indicate that American consumers are being cautious with their spending, waiting for more significant discounts. This cautious approach sets the stage for a restrained holiday shopping season for retailers and potentially underwhelming earnings in the upcoming months.
Consumer spending hasn’t maintained the same momentum witnessed in recent years, marked by post-pandemic splurges during the holidays. While brick-and-mortar Black Friday sales estimates are yet to surface, Salesforce Inc. forecasts a modest 1% increase in online US sales for November and December compared to the previous year. If realized, this would mark the slowest growth in at least five years, a trend that appeared consistent on Thanksgiving Day and then seemingly gained traction on Black Friday.
Some shoppers expressed disappointment with Friday’s discounts, signaling their inclination to wait for better sales. Alyssa Fanelli, shopping at Macy’s in the Willowbrook Mall, felt underwhelmed by the 25% discount offered on her desired wedding shoes, deeming it more of a regular sale than a Black Friday deal.
One contributing factor to this cautious approach by consumers is that retailers have managed their surplus inventory more effectively this year. Jessica Ramírez, an analyst at Jane Hali & Associates, noted a better balance in inventory this season, alleviating the urgency to clear excess stock as witnessed in the past.
Various data analysts anticipate a sluggish holiday shopping season. Adobe Analytics forecasts a 4.8% growth in online revenue in the US over the next two months compared to the previous year, an improvement from last year but significantly below pre-pandemic average growth rates. Similarly, Mastercard projects a 3.7% increase in US retail sales, aligning with pre-pandemic growth rates.
Vivek Pandya, lead analyst at Adobe Digital Insights, highlights consumers’ heightened price sensitivity. Preliminary data from Adobe reveals a 7.4% increase in online sales on Black Friday, largely attributed to substantial discounts on items like toys, apparel, and computers, though these figures aren’t adjusted for inflation.
Despite the cautious spending outlook, crowds still gathered to mark the unofficial start of the holiday shopping season. High-end malls like Westfield UTC in San Diego and Hudson Yards in New York witnessed bustling stores, with shoppers flocking to grab discounted items from various retailers.
Consumer Trade-Offs
The ongoing scenario reflects a decline in personal savings from the highs seen during the pandemic. Despite a moderation in the inflation rate, numerous items continue to hold higher prices compared to a couple of years ago. Elevated interest rates are also impacting the cost of purchasing homes and cars, prompting consumers to make trade-offs.
For instance, Lyndsey and Tyler Manassa, who previously spent up to $1,000 on family gifts, are now redirecting their funds towards preparations for their upcoming January baby. Tyler remarked, “No Christmas gifts this year,” as they shopped for new-home essentials at a Target in Chicago’s Logan Square neighborhood.
Michelle Meyer, US chief economist at Mastercard Economics Institute, highlights that the current pullback in consumer spending represents a shift toward a more customary shopping pace after the tumultuous experiences of recent years. She views this year’s sales forecast as indicative of a “return to a more balanced economy,” emphasizing the sustained low unemployment rate as a factor empowering consumers to spend.
Post-Covid-19, consumers initially enjoyed increased savings and stimulus payments, which fueled spending sprees, enabling retailers to scale back on discounts. However, supply-chain disruptions led to delayed merchandise deliveries for the 2021 shopping season, resulting in a surplus of inventory heading into 2022. Retailers offered substantial discounts to clear this excess stock, driving sales.
Nevertheless, last year’s deep discounts seem to have established an expectation among some shoppers for even better sales this year. Mark Talty, visiting the American Dream megamall in New Jersey, expressed disappointment, stating, “I don’t see the great sales that they talk about.” He plans to allocate a similar amount for holiday gifts this year as he did in 2022.
‘Not Realistic’
Melissa Minkow, director of retail strategy at CI&T, shared observations of shopper discontent regarding anticipated steep discounts not aligning with reality. She noted that while some retailers offered considerable discounts, there were also unrealistic expectations among shoppers for even deeper markdowns.
Despite her observations of substantial discounts, such as Madewell offering 50% off everything and Alo Yoga with a 30% discount, Minkow emphasized consumers’ heightened cost consciousness, emphasizing their quest for savings. However, she acknowledged retailers’ need to safeguard their profits, citing an average discount rate of about 30% this holiday season, surpassing 2019 figures and notably higher than the 24% rate in 2021, according to Salesforce.
Anticipated sales are likely to improve, particularly from the shoppers’ perspective, in the upcoming days. Adobe recommends waiting until Sunday for the most substantial discounts on toys and apparel, while Monday might offer the best deals for electronics and furniture. Retailers often adjust prices as the holiday season progresses to drive sales or manage surplus inventory, potentially affecting profit margins for those selling discounted items.
In contrast, companies anticipated to thrive this holiday season include off-price retailers like TJX Cos. (owner of TJ Maxx) and Ross Stores Inc., known for competitive pricing and broad product selections. Additionally, businesses offering sought-after fitness and outdoor gear aligning with the wellness trend are positioned for success. Ramírez highlighted companies like Nike Inc., Deckers Outdoor Corp. (owner of Hoka), On Holding AG (parent company of On Running), North Face Inc., and Lululemon Athletica Inc. as potential beneficiaries.
