While holiday sales are expected to rise this year, according to the National Retail Federation (NRF), sales growth could be lower when accounting for surging inflation.
The trade association forecasts sales this Christmas season, excluding spending at automobile dealers, gas stations, and restaurants, will increase by 6% to 8%. However, when inflation is factored in, year-over-year sales growth is anticipated to soften compared to 2021.
The latest inflation reading shows that the consumer price index was persisting at 8.2% annually in September, close to its 40-year high, according to the Bureau of Labor Statistics. While concerning, NRF President and CEO Matthew Shay still believes holiday spending will remain “healthy.”
During the first holiday season of the pandemic in 2020, sales jumped 8.2% year over year to $777.3 billion. In 2021, holiday sales grew a further 13.5%, reaching $889.3 billion.
Last year, retailers could scarcely keep shelves stocked amid robust demand and supply chain issues. This year, however, retailers like Walmart and Nike are reporting high levels of excess inventory.
The problem faced by some retailers has been exacerbated by shifting consumer habits, with Americans spending less on clothes and more on groceries, eating out, and traveling. In particular, lower- and middle-income Americans are feeling pressure amid higher food, gas, and housing costs.
While more cautious, consumers are still motivated to spend but increasingly turning to their savings or taking on debt to fuel purchases. According to Shay, “In the face of these challenges, many households will supplement spending with savings and credit to provide a cushion and result in a positive holiday season.”
Shay explained that consumers have been selective with their spending, allocating paychecks where they are needed most. “They’re focusing on those necessities… Some of that is going to impact their gift-giving and how they cover their other expenses during the holiday season,” Shay recently told CNBC.
According to the NRF’s chief economist, Jack Kleinhenz, it is not all bad news for retailers. Americans grew their savings accounts during the pandemic, and the labor market remains relatively strong. As a result, he said, people are reasonably comfortable continuing to spend this year.
The average U.S. consumer will spend $832.84 on gifts and other holiday-related items, like decorations. The NRF anticipates spending to persist at roughly the same levels as in the past decade. Of course, with elevated inflation, this dollar amount will net Americans fewer items compared to past years.
Hiring is also expected to soften this Christmas season. Retailers are predicted to add between 450,000 and 600,000 seasonal workers, less than the 669,800 hired in 2021.
Boston-based Bain & Co. also sees slowing holiday sales on the horizon. The management consulting firm estimates sales will experience upwards of 7.5% growth compared to 2021. When accounting for inflation, holiday sales are predicted to be only 1% to 3% higher than last year.
Another management consulting company, AlixPartners, is less optimistic, expecting nominal holiday spending to grow between 4% and 7%. If correct, with inflation factored in, holiday sales will shrink this year, according to the New York-based firm.
