(This column originally appeared on The Hill)
If you’re a merchant or your business, like so many, depends on a strong holiday season for its profits, then you’d better brace yourself: This year’s holiday season isn’t going to be very strong. There are just too many warning signs that you can’t ignore.
For example, and thanks to a bearish stock market and declining real estate values, household wealth suffered a record drop just last quarter and is expected to continue its fall through the remainder of the year. People just aren’t feeling as rich as they used to. Of course, this hasn’t stopped their spending through the summer. Credit card debt has now “soared at its fastest pace in 15 years,” which to me means that right now people are seeing shockingly high bills from Visa and MasterCard and reconsidering their spending plans this holiday season.
That’s because they’re not liking what’s coming. Consumers are already dealing with rapidly rising core living costs and not-rapidly-enough rising income. Rents from Miami to Oklahoma City have increased at their fastest pace in years. Grocery prices are up over 12 percent year-over-year and the volatility of gas prices has spooked many of us. Both consumer and small business confidence have plummeted over the past few months because people are very wary of a recessionary 2023, the war in Ukraine that may cause further energy price headaches and a polarized Washington that won’t be able to agree on any helpful measures. Tens of thousands of workers are being laid off across the country by their big corporate employers who are cutting the fat in advance of what looks like a recessionary year.
People read the news and are concerned about their jobs and rising costs. To me, that concern is going to have a significant impact on their spending.
The big retailers know this already. Target’s shares plummeted in the wake of its gloomy holiday forecast, and Home Depot’s outlook is “dim.” Walmart and Amazon are laying off people heading into the shopping season amid a holiday season “slowdown” and the desperate need to reduce their inventories. (Amazon — Amazon! — is forecasting a “slowdown in sales growth” in the fourth quarter.)
Both FedEx and UPS are reporting, and forecasting, shipment declines. These companies have been through countless holiday seasons. They know their markets. They have the data. And the data are telling them that things aren’t going to be so great this December.
Not everyone is as gloomy. The CEO of home goods chain Lowes is bullish, saying that “Consumer savings are near record highs, while disposable personal income remained strong … and this is why we’re so confident (about the industry outlook) even in a period of high inflation and rising interest rates.” The National Retail Federation, in a valiant effort to drum up demand for its many members, insists that shopping will be “solid,” with an expected sales increase of anywhere from 4 to 6 percent.
But even the federation’s rosy forecast is a far cry from the 15 percent increase from last year, and unfortunately the expected per-capita consumer expenditure of $833 during the holidays is projected to be significantly down from $879 last year.
My clients are circling the wagons and preparing for a very tepid fourth quarter, at best. They’re also doing a few other things that, if you’re a merchant or businessperson, you should also be doing.
For example, they’ve stopped buying. Thanks to the supply-chain headaches of the past two years, many bought inventory well in advance this year to prepare for a demand that won’t entirely be there. So, they’re cutting back on purchases and focusing on paring down their products.
They’re doing this by already (and yes, I know it’s not even Thanksgiving) starting their holiday sales. Big names such as Apple and other major retailersbegan their Christmas promotions back in October. Many of the smaller merchants I know are doing the same with the goal of enticing shoppers while they still have a few dollars left on their credit lines. And for those who don’t, many businesses are leaning into consumer financing services like “buy now, pay later” programs (despite regulatory concerns) to help them make their purchases. They’re also expanding their hours and doubling down on their marketing spending.
My smartest clients, who realize that this holiday season won’t be so great, are looking beyond 2022. They’ve setup loyalty programs and databases to collect the names and buying preferences of anyone who walks into their store (with permission, of course). That way they’re setting themselves up to directly market to these customers over the winter months, offering discounts and other enticements to generate sales during that slowest time of the year.
Compared to the booming times of the past few years, this holiday season is going to be weak for most businesses. What’s worse, after getting a break during the pandemic from having to be around all those relatives, this year they’ll be back and annoying as ever. Can I get a little extra rum in my eggnog, please?