As summer winds down, U.S. retailers are preparing for the all-important back-to-school and holiday shopping seasons. Although this article describes the U.S. economy, many similarities exist here as well for the Canadian marketplace. So far in 2023, despite inflation, economic uncertainty and a prioritization of spending on experiences over goods, consumers have come through pretty well for the industry. Yet, even with the first half of the year over, it’s hard to know what’s ahead. That’s in part because recent holidays aren’t providing many clues, according to Meghann Martindale, head of retail research at Madison Marquette.

“Last year, consumers were still kind of in the high of ‘Great, everything’s back to normal. We’re just going to spend like we don’t care,’” she said. “I don’t know that consumers will be as bullish this year.”

As the season approaches, these are some of the forces that are working both for and against retailers.

First the good news

Inflation is down
In 2022, holiday spending rose nearly 7% year over year, but much of that was due to inflation, according to GlobalData. While this year prices have been declining at least somewhat in many categories, the cost of gas, groceries and other essentials shrank many households’ discretionary spending budgets throughout much of the first half. 

Consumer sentiment is up
Even more recently, consumer confidence, which had been in the doldrums, in July rose to the highest level in two years, according to the Conference Board Consumer Confidence Index.

The elevated sentiment could be because of good economic news in real terms. Employment remains strong, and real wages are up, now even beating inflation, according to Telsey Advisory Group analysts Dana Telsey and Joseph Feldman. Morgan Stanley analysts.

A UPS strike averted
The Retail Industry Leaders Association in late July warned that an impending strike by unionized UPS workers would be “kryptonite” to supply chains just ahead of the holiday season. But a few days later, a tentative agreement was reached. While ratification isn’t guaranteed it is important for retailers to remain agile. 

Consumers want to ‘return to normal’
Top searches related to Labor Day — involving outdoor activities, patio furniture, electronics, home improvement and beer — indicate a “desire to return to normalcy” and provide an opening for retailers to re-engage with customers, according to Isaac Gerber, data and analytics lead at Captify.

That’s spilling into end-of-year shopping as well, Gerber said by email. “We’re seeing early indications of a strong holiday shopping season,” Gerber said. “Interest in holiday deals is already starting to build, with mid-year interest already 450% higher than the same time last year.”

And some of the challenges

Consumers are keen to find deals
While lower inflation means more discretionary spending in consumers’ pockets, there’s some downside for retailers, Martindale said. Margins will be under pressure on two fronts — many retailers still have surpluses of inventory that will require markdowns, and consumers are expecting price tags to shrink.

Matt Pavich, senior director of strategy and innovation at Revionics, an Aptos company specializing in AI-driven pricing optimization, also said that shoppers will be on the hunt for good prices during the back-to-school period.“In recent years, consumers have learned to navigate numerous additional channels and purchasing options while also bearing the brunt of inflation,” Pavich said by email. “… Retailers need to be aware of this and offer great products at great value across all channels while considering some less traditional retailers as competitive threats.”

Some retailers at risk as student loan forgiveness ends
U.S. consumers are already carrying nearly a trillion dollars in credit card debt, which alone might hamper some household spending at the holidays, according to Martindale. After the Supreme Court struck down President Biden’s student debt forgiveness program, millions of household budgets will each be out hundreds of dollars more per month, according to number-crunching from consumer data firm Earnest Analytics. 

Those with higher market share among these borrowers — including Peloton, Ikea, Ashley, HomeGoods, Wayfair, Lowe’s, and most apparel and department stores — will especially feel the pinch as their customers divert funds to their loans, per Earnest’s report. 

The ‘anti-woke mob’ is still out there
Extremist groups’ success in riling up some people around Pride month ruined many retailers’ attempts to celebrate the LGBTQ+ community, particularly Target, once an outspoken ally. The holiday season offers retailers no protection from the people and groups — mostly right-wing pundits, politicians and hate groups rallying against “wokeness” — that are fomenting such behavior, according to Alison Taylor, executive director of the Ethical Systems program at New York University’s Stern School of Business. Retailers will only invite counter-backlash, often from some of their best customers, if their response seems meant to appease extremists.

Source: Retail Dive