Clouds of crushing inflation 'Black Friday' shopping bonanza

Clouds of crushing inflation ‘Black Friday’ shopping bonanza

The Black Friday kickoff of the holiday shopping season is expected to bring particularly deep discounts in 2022, but one of the challenges will be finding consumers confident enough to spend.

Rampant inflation in the world’s biggest economy in recent months has sown uncertainty over this year’s holiday season, which kicks off the day after Thursday’s Thanksgiving holiday.

A year ago, retailers faced product shortages following shipping backlogs and Covid-19-related factory closures. To avoid a repeat, the industry has concentrated its holiday imports this year, leaving it vulnerable to oversupply at a time when consumers are cutting spending.

“Supply shortages were yesterday’s issue,” said Neil Saunders, managing director of GlobalData Retail, a consultancy. “Today’s problem is having too many things.”

Saunders said retailers have made progress in recent months in reducing excess inventory, but oversupply has created banner conditions for bargain hunters across many categories, including electronics, home improvement home and clothing.

Juameelah Henderson is still checking sales, “but not anymore,” she said as she walked out of an Old Navy store in New York with four bags of items.

The clothing chain’s prices were “really good,” she said. “If it’s not on sale, I really don’t need it.”

Higher costs for gasoline and household staples like meat and grain are an economy-wide problem, but don’t weigh on everyone equally.

“The drop in income is certainly the most affected by the rise in inflation,” said Claire Li, senior analyst at Moody’s. “People need to spend on essentials.”

– Diminishing savings –

Leading forecasts from Deloitte and the National Retail Federation call for a single-digit percentage increase, but it’s unlikely to outpace the rate of inflation.

The consumer price index is up about eight percent on a yearly basis, meaning a similar increase in holiday sales would equate to lower volumes.

American shoppers have remained resilient through countless stages of the Covid-19 pandemic, often spending more than expected even when consumer sentiment surveys suggest they are in a bad mood.

Part of the reason is the unusually robust state of savings, with many households cashing in on government pandemic assistance payments at a time of reduced consumption due to Covid-19 restrictions.

But that cushion is starting to dwindle. After hitting $2.5 trillion in excess savings in mid-2021, the benchmark fell to $1.7 trillion in the second quarter, according to Moody’s.

Consumers with incomes below $35,000 have been hardest hit, with their excess savings dropping nearly 39% between the fourth quarter of 2021 and mid-2022, according to Moody’s.

This decline was accompanied by an increase in credit card debt visible in Federal Reserve data and described anecdotally by chains which also report more purchases made with food stamps.

“We see continued pressure,” said Michael Witynski, general manager of Dollar Tree, a discount retailer that has seen “changes” in shoppers, “where they are very consumable and needs-driven to try to make work out that budget. and stretch it over the month.”

– Mixed picture –

Earnings reports from retailers in recent days have painted a mixed picture of consumer health.

Target stood on the depressed side of the ledger, pointing to a sharp drop in shopping activity at the end of October, potentially pointing to a weak holiday season.

The big-box chain is expecting a “very promotional” holiday season, said general manager Brian Cornell.

“We have a consumer who has been dealing with very stubborn inflation for quarter after quarter,” Cornell said on a conference call with analysts.

“They buy very carefully on a budget, and I think they’re looking at discretionary categories and saying, ‘Okay, if I’m going to buy, I’m looking for a good deal and great value. “

But Lowe’s, another major U.S. home improvement chain, offered a starkly different view, calling the same late October period “strong” and seeing no evidence of deteriorating consumption.

“We don’t see anything that looks or resembles a drop in trade or a pullback in consumers,” Lowe’s chief executive Marvin Ellison said.

Consumers like Charmaine Taylor, who frequently checks airline websites, remain vigilant

So far, Taylor has been thwarted in her travel aspirations due to exorbitant airfare prices. Taylor, who works in childcare, isn’t sure how much she’ll be able to spend on her family this year

“I try to give them little gifts,” Taylor said at a Harlem park earlier this week. “I don’t know if I’ll be able to. Inflation is hitting pretty hard.”


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