Don’t write off the holiday selling season just yet.
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The U.S. consumer is more discerning, but a confluence of retail factors—normalization of inventory levels, higher out-the-door prices along with fewer promotions, and a good Back-to-School (BTS) selling season—set the stage for a decent, albeit promotional, holiday selling period.
A Boston Consulting Group (BCG) Holiday Outlook Survey found that 28 percent of consumers plan to spend more in 2024 than last year, 27 percent plan to spend less, and 45 percent plan to spend the same. The survey gathered insights from U.S. consumers and credit card data. It also noted the later start to the holiday season, with both the Thanksgiving and Hanukkah holiday falling later on the calendar versus 2023.
“Ongoing geopolitical tensions, global military conflicts, and the upcoming 2024 presidential election are creating an environment of split attention for US consumers,” BCG said in a blog post. Higher prices from peak inflation over the past year has tightened discretionary spend, while BCG’s expectation is that some consumers might not think about their holiday shopping lists until after their votes are in.
Deloitte forecasts holiday retail sales growth of 2.3 percent to 3.3 percent, a range that the research and consulting firm said is more in line with trends over the past decade. But the bigger hint that consumers will be out shopping, even as they hunt for bargains to stretch their budget, has been the somewhat better than expected BTS data. BTS sales are often considered a good barometer for the consumer mindset for the holiday season.
And coming up next month on Oct. 8-9 will be Amazon’s Prime Day event for the fall. According to Chip West, RRD’s retail and consumer behavior expert, August represented a late summer focus on BTS savings as consumers took advantage of “enticing offers and deals” that were promoted by retailers.
“Weakening inflation, falling interest rates, lower unemployment, combined with a 6-month high in consumer confidence, should lay the foundation for a positive holiday shopping season,” West said. “While it is currently unknown how political elections will ultimately impact consumers’ mindsets, it is predicted that a significant number of holiday shoppers will begin their journeys early, with many not holding loyalty to a specific brand or retailer.”
According to West, he expects most consumers to pull back on everyday purchases so they can prioritize holiday budgets.
“We know that a significant number of consumers will be shopping earlier for holiday gifts this year starting in October, but the majority will shop November and December,” he said.
West also pointed to years past when inventory issues and limited assortment mix led to disappointed holiday shoppers, resulting in a fear of missing out mindset that has contributed to more consumers taking advantage of early deals and offers.
“Due to the late Thanksgiving, the holiday shopping season has only 26 days between [Thanksgiving Day] and Christmas Day compared to 31 last year. This compression will only elevate deal-seeking activities from consumers who will be ‘holding out’ and on the lookout for offers and deals during that later period,” he said.
Inventory
According to Dana Telsey, chief investment officer of Telsey Advisory Group (TAG), nearly all categories under TAG’s coverage saw sales growth outpace inventory growth in the second quarter of 2024. She noted that the department store sector was the only one that had inventory growth outpacing sales growth, while the home category saw inventory growth exactly offset by sales growth.
“Amid a challenging macro backdrop and continued consumer pressure, we continue to expect retailers to maintain tight control of inventory in 2024,” she concluded.
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Telsey said inventory levels for fashion and footwear mostly saw declines in the second quarter, although specialty apparel was up slightly at 0.3 percent year-over-year. Off-price was up 3.9 percent year-over-year and department stores were up 1.2 percent, also year-over-year. She also noted a continued narrowing of inventory-sales spreads from the first to second quarter as a reflection of “tighter inventory management as retailers try to drive sales growth in a challenging operating environment.”
Moreover, improving supply chain trends and leaner inventory positions indicate a return to a more normalized planning, ordering and buying timeline. That retail buying backdrop suggests that retailers are once again able to read, react, and chase trends, Telsey concluded. She also that retailers are getting “smarter and more disciplined with promotions.”
The good news is that retailers continue to balance lower inventories and managing promotions, a plus with an increasingly discerning consumer. However, expectations for improving input costs in the back half of 2024 could be tempered by consumer sensitivity around discretionary purchases, Telsey cautioned, adding that back half earnings results could be impacted should macro pressures deteriorate from first half trends.
Pricing
UBS U.S. softlines retail analyst Jay Sole said that the research firm’s proprietary data indicates that out-the-door prices for goods such as fashion rose 4.2 percent year-over-year.
Ticket prices were raised in 2022 and 2023 due to “high cost inflation,” but companies gave back the price increases at a 2.5 percent rate over a nine-month period. It wasn’t until this past July when the trend shifted, indicating to the UBS team that the pressure on prices has abated. Sole said the abatement is likely due to stable levels of demand combined with lean inventory levels.
“This is the second month in a row when prices have increased year-over-year after falling every month from October 2023 through June 2024,” Sole noted, adding that the rate of year-over-year change in promotions also decelerated again month-over-month.
“These two data points imply the Back-to-School season has been solid,” Sole concluded, adding that good BTS demand is “a good omen” for the upcoming Holiday selling season.
According Sole, four retailers—Gap, The Children’s Place, Foot Locker and Carter’s—had some of the biggest year-over-year jumps in promotions in August. Four others—Abercrombie & Fitch, Steve Madden, Under Armour and PVH—had some of the biggest year-over-year declines in promotions. As for price increases, Foot Locker, Macy’s and Nordstrom had some of the biggest year-over-year increases in out-the-door prices in August. Gap, Carter’s and The Children’s Place had some of the biggest year-over-year decreases in prices.
Back to School
Data from Placer.ai Mall Index shows that BTS shoppin g fueled year-over-year foot traffic growth across all mall categories in August, up 7.3 percent for indoor malls, 5.8 percent for open-air shopping centers, and 6.1 percent for outlet malls.
A research report from Jefferies said that BTS has a fairly strong start to the selling season, with improving traffic trends in August. Jefferies’ proprietary research also indicates that BTS trended flat or up slightly, better than industry expectations of down low- to mid-single digits year-over-year.
Value plays were also key this year, as Walmart’s management cited a strong start to BTS last month and how an additional 50 percent of customers still had BTS shopping to do. “While Target highlighted in-line BTS trends during its Q2 earnings call, our data shows that foot traffic accelerated nicely to 8 percent in August versus 4 percent in July,” the research note said.
Deloitte Forecasts Holiday Retail Sales to Rise 2.3% to 3.3%
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