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Retailers Working Hard to Lure Weary Shoppers

Business

A woman shopping | Image by Shutterstock

Retailers like Amazon and Best Buy are pulling out all the stops this holiday season to attract potentially weary consumers and unload a glut of built-up inventory.

For the most part, the latest shopping season has started off well. In-store sales on Black Friday were up 12% annually, and e-commerce sales performed even better, up 14% year-over-year.

While people are still spending, elevated inflation weighs heavily on U.S. households. So too are the interest rate hikes being used to suppress soaring prices, with Americans increasingly pessimistic about the economy’s prospects in the near term.

For retailers, a looming recession coupled with excessive inventory has encouraged an urgent campaign to unload as much stock as possible. As a result, an abundance of sales has been advertised to lure shoppers.

“We’re going to spend a lot of time right now focused on executing our plan, getting through the holiday season and then assessing the consumer and the overall retail landscape as we look to 2023,” said Target Chief Executive Brian Cornell on a recent analyst call.

Some economists see the holiday season as a litmus test for the economy’s health in 2023. A successful shopping season might indicate that prospects are brighter than many might believe.

“For the overall economy, I think that it’s going to be very important to look at what the consumer is doing because really that’s going to be your key indicator… It’s the key engine of growth,” stressed Lydia Boussour, an economist at EY-Parthenon.

Consumer spending represents the majority, roughly 70%, of total U.S. economic output. Fourth-quarter spending is expected to be buoyed, at least partly, by savings that grew over the pandemic. According to the Fed, Americans held roughly $1.7 trillion in extra savings mid-way through 2022.

Unfortunately, saving rates are slowing. In September, the most recently available data, Americans saved 3.1% of their after-tax income. This is less than half the percentage witnessed during the period preceding the pandemic. For the poorest Americans, those rates have dropped even further.

Another potentially worrying indicator is growing consumer debt balances. In Q3, American credit card balances were up 15% annually, the largest jump in over 20 years.

Consumer sentiment is similarly deteriorating, with the University of Michigan survey revealing their index fell from 59.9 in October to 56.8 in November.

Boussour said that Americans are shopping, but “they’re feeling depressed about the overall economic situation, and they are going to grow increasingly reluctant to spend.”

October saw retail sales increase 1.3% year-over-year, a welcome recording higher than economists predicted.

While purchases continue to be made, Aneta Markowska, a chief financial economist at the investment bank Jefferies, believes “there’s a lot of uncertainty about next year because the Fed obviously has raised rates very aggressively this year and we haven’t really felt the effects yet.”

To pad this year’s holiday shopping sales, deals have been plentiful and dropped earlier than usual. Target, for example, had Deal Days in October. Retailers claim that more and more shoppers are looking to take advantage of discounts amid high inflation.

“Value clearly matters to everyone,” said Corie Barry, the chief executive of Best Buy.

For some consumers, the sales are insufficient. D.J. Baggerly of Springfield, Illinois, said that inflation has been “ridiculous.”

According to Baggerly, who is 69 and living on a fixed income, she is cutting her spending this holiday season.

“I’m done,” she said.

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