Inflation clouds ‘Black Friday’ shopping bonanza

Retailers braced for their biggest test of the year: Will American consumers open their wallets for the Black Friday sales that kick off the holiday shopping season?

Consumer confidence is precarious, rattled by skyrocketing inflation in the world’s largest economy, casting uncertainty on this holiday shopping season that kicks off the day after the Thanksgiving holiday on Thursday.

A year ago, retailers faced product shortages in the wake of COVID-19-related shipping delays and factory closures. To avoid a repeat, the industry moved its Christmas imports earlier this year, leaving it vulnerable to oversupply at a time when consumers are cutting back.

“Supply shortages were the problem yesterday,” said Neil Saunders, managing director of GlobalData Retail, a consultancy. “Today’s problem is having too many things.”

Saunders said retailers have made progress in recent months in reducing excess inventories, but the glut created exceptional conditions for bargain hunters in many categories, including electronics, home improvement and apparel.

Juameelah Henderson always checks sales, “but more so now,” she said as she left an Old Navy store in New York with four bags of items.

The clothing chain’s prices were “pretty good,” he said. “If it’s not for sale, I really don’t need it.”

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

“Lower incomes definitely bear the brunt of higher inflation,” said Claire Li, a senior analyst at Moody’s. “People have to spend on essential items.”

Leading forecasts from Deloitte and the National Retail Federation project a single-digit percentage increase, but likely not to exceed the rate of inflation.

The consumer price index is up 8% annually, meaning that a similar size increase in holiday sales would equate to lower volumes.

European countries, including Britain and France, have also been celebrating Black Friday for a few years and are also enduring sky-high inflation. So traders are faced with a similar dilemma.

“Retailers are desperate for a bit of spending encouragement, but the worry is that it could turn into a gloomier Friday,” said Susannah Streeter, a senior market and investment analyst at Hargreaves Lansdown in London.

diminishing savings

US shoppers have remained resilient through the myriad stages of the COVID-19 pandemic, often spending more than expected even as consumer confidence surveys suggest they are in a bad mood.

Part of the reason has been the unusually strong state of savings, with many households depositing government pandemic relief payments at a time of reduced consumption due to COVID-19 restrictions.

But that mattress is starting to fade. After reaching $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 below $35,000 were hardest hit, with their excess savings falling nearly 39% between the fourth quarter of 2021 and mid-2022, according to Moody’s.

Accompanying this drop has been a rise in credit card debt visible in Federal Reserve data and described anecdotally by chains that are also reporting more purchases made with food stamps.

“We’re seeing continued pressure,” said Michael Witynski, chief executive of Dollar Tree, a discount retailer that has seen “shift” in shoppers, “where they’re very consumable and necessities-focused to try to make that budget work”. and stretch it out over the month.”

mixed image

Retailer earnings reports in recent days have painted a mixed picture on consumer health.

Target was on the downside of the ledger, pointing to a sharp drop in shopping activity in late October, which could herald a weak holiday season.

The supermarket chain is expecting a “very promotional” holiday season, chief executive Brian Cornell said.

“We’ve had a consumer who has been dealing with very stubborn inflation quarter after quarter,” Cornell said on a conference call with analysts.

“They’re shopping very carefully on a budget, and I think they’re looking at discretionary categories and saying, ‘Okay, if I’m going to shop, I’m looking for a great deal and a great value.’ “

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

“We’re not seeing anything that feels or looks like a business dip or consumer pullback,” Lowe’s Chief Executive Marvin Ellison said.

Consumers like Charmaine Taylor, who checks airline websites frequently, are keeping an eye out.

Until now, Taylor has been frustrated in her travel aspirations due to the high prices of plane tickets. Taylor, who works in childcare, isn’t sure how much she’ll be able to spend on the family this year.

“I’m trying to get them some freebies,” Taylor said at a park in Harlem earlier this week. “I don’t know if I’ll be able to do it. Inflation is hitting pretty hard.”

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