40-year ache: Inflation forcing consumers to make choices, cut back
"Hey Siri, find cheap food." Consumer spending is weakening as sky-high inflation forces shoppers to tighten their belts. How can brands keep customers?
While kids and pets will still get gifts, friends may not be so lucky. Struggling with historic inflation and tight budgets, consumers plan to cut back on their holiday spending this year.
All signs point to a holiday shopping season marked by thrifty shoppers looking for deals and ways to trim their gift lists. Forecasters predict only modest growth in retail sales, with most of it driven by inflation.
As holiday spending trends for 2022 take shape, here’s what retailers can expect.
2022 holiday spending trends: Consumers wary; wallets tighten
Heading into the most critical time for retailers, consumers are feeling the pinch. Fifty-five percent of consumers plan to change their holiday shopping plans due to inflation, a survey by Jungle Scout found.
According to Deloitte’s annual forecast, holiday retail sales will increase 4% to 6%, totaling $1.45 to $1.47 trillion this season, compared to 15.1% growth last year.
“As inflation weighs on consumer demand, we can expect consumers to continue to shift how they spend their holiday budget this upcoming season,” Nick Handrinos, vice chair, Deloitte LLP, and U.S. retail, wholesale and distribution and consumer products leader, said in a prepared statement.
Inflation will help to raise dollar sales, although retailers will see less growth in sales volume, Deloitte said.
The Mastercard SpendingPlus predicts that US holiday retail sales will grow 7.1%, not adjusted for inflation. Last year, retail sales grew 8.5%, the company said.
Other downward stats for the upcoming holidays:- 59% feel stressed about holiday shopping due to inflation
- 61% will buy fewer gifts this year
- 43% expect to go deeper into debt by the end of the year
- 76% believe the US is in a recession or headed for one
2022 holiday shopping: 3 ways retailers can brace for impact
As a recession looms, retailers face a cloud of uncertainty this holiday shopping season. They're preparing by focusing on supply chains, customer loyalty, and omnichannel strategies.
Budget-conscious consumers & bargain hunters
As consumers look for ways to save money this holiday season, they’re making a lot of choices and trade-offs.
Deloitte expects they’ll spend money on restaurants and other services instead of goods. Mastercard predicts apparel will be a hot category as consumers shed pandemic-era leisure wear.
Jungle Scout’s survey revealed some intriguing cost-cutting trends. Among them: The first recipient consumers plan to cut from their holiday shopping list is themselves. They’re also planning to do more regifting and second-hand shopping.
The survey also syncs with other reports indicating another early start to the holiday shopping season. Like last year, shoppers are looking for deals and making purchases well before the traditional start of holiday shopping season in late November.
In 2021, Amazon and other big retailers offered holiday discounts before Black Friday. This year, Amazon is holding an October event with deals for its Prime members, similar to its summertime Prime Day.
Online deals and the return of holiday doorbusters
Experts predict that consumers looking for discounts and deals will help drive e-commerce holiday sales growthDeloitte expects 2022 holiday e-commerce sales to increase 12.8% to 14.3% compared to last year, when they grew 8.4% and totaled $231 billion.
“Retail sales are set to increase as a result of higher prices, and this has the potential to further drive e-commerce sales as consumers look for online deals to maximize their spending,” Nick Handrinos, vice chair, Deloitte LLP, and U.S. retail, wholesale and distribution and consumer products leader, said in a prepared statement.
Mastercard forecasts holiday e-commerce to grow 4.2% year-over-year, noting “the channel remains a convenient way for consumers to check prices in real time.”
But the company also predicts stronger growth of in-store sales this holiday season — an increase of 7.9% year-over-year.
“While e-commerce has seen marked growth in recent years, in-store spending made up more than 4/5 of retail sales from January through August 2022,” Mastercard said.
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A tough economy is about to get tougher
The outlook for consumers for the rest of the year is decidedly gloomy.
The Federal Reserve has warned that its aggressive interest rate hikes will result in job losses.
The central bank projects unemployment will rise to 4.4% next year, possibly reaching 5%. That would mean 1.2 million more unemployed people.
The Fed’s goal is to curb inflation by reducing spending and flattening wage growth. But some economists say the strategy is puzzling while labor advocates are outraged.
