Blizzard Headwinds for Retailers This Holiday Season, Watch for Biting Inflation

November 19, 2022  by HFBusiness Staff in Business Strategy, Industry   

"Overall, results point to a choppier holiday spending backdrop this year, with 46% of consumers planning on spending less this holiday season and 23% planning to spend the same amount as last year," said the team of analysts, whose coverage spans the retail and tech sectors.

The main culprit of the reduced spending intentions is none other than biting inflation, which continues to hammer household finances. Nearly 80% of consumers expect to adjust their behavior because of the inflationary environment, the survey found. About half of that 80% plan to trade down to cheaper products.

In the uncertain economic environment, Goldman says Amazon and Walmart will remain top shopping destinations this holiday season. Walmart CFO John David Rainey recently told Yahoo Finance Live his company is seeing higher-end consumers trade down to the discount retailer.

"We expect consumers to hunt for promotions this holiday period (as there will be an abundance of them), which could limit the scope for a continuation of average unit retail price gains that have been a key offset for margins year to date," the analysts added.

To be sure, retailers will enter the holidays — their most important selling period of the year — with a number of economic headwinds. GDP rose 2.6% in the third quarter, but that marked the only positive quarter for growth in 2022 so far.

Inflation remains stubbornly high and a major problem for American households. The October Consumer Price Index (CPI) report showed that the overall cost of groceries is up by 12.4% annually. Consumer confidence, meanwhile, tanked several percentage points in November compared to October.

This week alone, Target missed on earnings by a country mile and warned about profits for the holiday quarter. Home goods retailer Williams-Sonoma also served up a lackluster fourth-quarter outlook as shoppers shunned discretionary purchases.

"Sitting here today, if you look at some of the syndicated data that has been released, obviously you've seen a significant change in consumer shopping patterns as we ended October and moved into the month of November," Target Chairman and CEO Brian Cornell told Yahoo Finance.

Cornell continued, "So clearly, it's an environment where consumers have been stressed. We know they're spending more dollars on food and beverage and household essentials. They're looking for promotions and are looking for that great deal. And I would expect that promotional focus will continue throughout the holidays."