Retailers Prepare for Another Holiday Shopping Season, But Consumers Burned Out the highest inflation in a generation may have other ideas.
Industry groups are predicting another record year for retail sales National Retail Federation forecast a 6% to 8% jump from the $890 billion spent by consumers online and in stores in November and December 2021.
But Jeff Bezos, founder and chairman the biggest retailer of all, apparently foresees a much less festive holiday for business. In November 2022, Amazon said he lays off 10,000 workersone of several large companies recently announced job cuts. Even Bezos warned consumers put off big purchases like cars, TVs, and appliances to save for a recession in 2023.
The results of our new survey suggest that consumers already seem to be taking Bezos’ advice as a combination sharp rise in consumer prices, rising borrowing costs and the likelihood of a recession is rising weighs on their wallets. And if our poll results hold true, that could mean recession worries everyone occurs earlier than expected.
We conducted the survey in mid-November, about a week before Black Friday, the historic start of the holiday shopping season. The day after Thanksgiving is known as Black Friday because it signals a period when retailers hope to sell enough merchandise to put their income statement in the “black,” or profit for the year, rather than “in the red,” which refers to losses.
We asked more than 500 consumers a series of questions about their spending plans, challenges and priorities during this year’s holiday season. Participants were split equally between men and women, and nearly two-thirds had a household income of $70,000 or less.
Overall, the most troubling finding of our research is that consumers report consumer behavior usually manifests itself during an economic crisissimilar to those observed in 2009 by the consulting company McKinsey during the Great Recession.
One point worth noting is that an overwhelming majority of 62% said they were worried about their job security, while nearly 35% said they were “very” or “extremely” worried about their financial situation.
Here are three behaviors we found in our survey that show consumers are behaving as if the U.S. economy is already in recession.
1. Spend less
Not surprisingly, cutting back on spending is the first thing consumers do during economic turmoil.
Research on McKinsey in early 2009, it was found that 90% of US households had cut back on spending due to the Great Recession, with 33% of consumers reporting significant cuts.
Similarly, our survey respondents said they plan to spend an average of about $700 this holiday season, significantly lower than the roughly $880 consumers spent in each of the past three seasons — including the start of the 2020 pandemic.
About a third of our sample planned to spend “a little” or “a lot” less than in 2021, while 35% said they would spend “about the same,” which in retail terms means they will spend less, because last year’s dollars don’t go as far as today. The rest said they planned to spend a little or a lot more.
Inflation is one of the main reasons consumers say they are spending less. Nearly 80% of respondents said they were moderately, very, or very concerned about rising prices, and 87% said those concerns would affect their spending during the holidays, such as buying gifts for fewer people or purchasing less expensive items.
Some of our respondents even said they plan to make their own gifts or buy second-hand items instead of buying new things. The the second-hand market developed rapidly in the past few years, and many buyers are looking at this option as a way to combat inflationary pressures.
2. Planning ahead
Another thing consumers do when the economy is struggling is to plan their purchases more carefully keep your composure over expenses.
Common strategies include spending more time looking for the best deals, sticking to strict shopping lists, prioritizing essentials and shopping early to spread out your spending, all of which were mentioned by our respondents.
We may already be seeing signs of this latest strategy. Retail turnover for October were up 1.3% from the previous month and up 8.3% from October 2021, which may indicate early holiday shopping by consumers. If that’s the case, early purchases could cause sales to drop in December.
In addition, buying early, promoting many cool discounts are offered well before Black Friday, allows consumers to better control their shopping behavior and reduces the risk of impulse purchases. Reducing impulse purchases is a strong indicator that consumers shop as if the economy is in recession.
In our survey, we found that over 50% of participants said they would use savings to cover the cost of their holiday, with many emphasizing that they would pay in cash. Using cash as the primary form of payment it is a primary consumer tool control costs.
Only 15% of our respondents said they would use buy-now-pay-later options, which to us is another sign that consumers prefer cash over forms of credit that create new debt.
3. Increased price sensitivity
During economic crises, consumers become hypersensitive to priceswhich trump most other considerations in the minds of consumers.
A whopping 90% of our respondents confirmed that price is their top factor when shopping for the holidays this year. Other elements of price sensitivity are free shipping, product value, and discount level, if any.
Consumers’ particular focus on price gives retailers a wide range of potential responses, including promoting own brands and private labels, which are perceived to be better value for money. In fact, according to Art McKinsey Report 2009, one of the biggest shifts in consumer behavior during and after the 2008 recession was a shift away from expensive premium brands to value brands, which tend to have lower prices but still decent quality. During an economic downturn, consumers usually stop buying brands they are not strongly associated with or loyal to.
Consumers who participated in our survey said that purchasing brand names will be one of the least important influences on their purchases this season.
While economists debate whether a recession is on the way, or even if the US is already in one, our data suggests that consumers are beginning to behave as if the recession is already here. This risks becoming a self-fulfilling prophecy as consumers tighten their belts.