Why retailers are doing all they can to woo holiday shoppers

Why retailers are doing all they can to woo holiday shoppers

Amazon held what amounted to an extra Prime Day in October, blanketing its deals site. Best Buy kicked off Black Friday-level sales last month. And on Friday, Kohl’s entered the first 200 people to enter each of its stores to enter a raffle, with prizes including gift cards to Sephora and a family trip to a Legoland resort.

With the all-important holiday shopping season upon us, retailers are not just competing for customers. They also compete against the clock.

For now, Americans are spending, buoyed by pandemic-era savings and a scorching job market. But at the same time, prices are rising at the fastest rate in decades, and the Federal Reserve is trying to contain them by raising interest rates. This effort to dampen demand by making borrowing more expensive in turn makes consumers pessimistic about the economy. And a recession is a distinct possibility.

Retailers, some of whom are sitting on a glut of inventory, want to sell as much as they can while consumers are still pulling out their wallets. So they’re blasting customers with discounts, hoping to entice them to buy before an economic downturn causes behavioral change again.

Whether retailers succeed will have profound implications. Billions of dollars are at stake, and companies will be watching the outcome closely as they make hiring and investment decisions for the new year.

“We’re going to be spending a lot of time right now focusing on executing our plan, getting through the holiday season, and then assessing the consumer and the overall retail landscape looking ahead to 2023,” said said Brian Cornell, chief executive of Target, said in a call with analysts this month.

More broadly, retail sales during the holiday shopping season could provide clues to the trajectory of the economy in the weeks and months ahead.

“For the overall economy, I think it will be very important to look at what the consumer is doing because that will really be your key indicator,” said Lydia Boussour, economist at EY-Parthenon. “It’s the main driver of growth.”

Forecasters generally believe that consumer spending, which accounts for about 70% of total economic growth, will remain strong in the fourth quarter, thanks in large part to household savings. Collectively, Americans midway through this year were still sitting on about $1.7 trillion in additional savings accrued during the pandemic, according to Fed estimates, thanks in part to government assistance.

But in September, the most recent month for which calculations were available, Americans saved just 3.1% of their after-tax income, less than half the pre-pandemic share. And the poorest Americans are seeing their savings shrink even faster than the wealthiest.

Meanwhile, credit card balances in the third quarter rose 15% from a year earlier, according to the Federal Reserve Bank of New York. It’s the biggest increase in more than two decades as consumers increasingly rely on credit even as borrowing costs rise.

And a University of Michigan survey this month showed a sharp drop in “consumer sentiment” – a measure of how people feel about the economy and their financial situation. Even if consumers continue to shop, Ms. Boussour said, “they are feeling depressed by the overall economic situation and they are going to become increasingly reluctant to spend.”

Retail sales rose 1.3% in October, more than expected, as shoppers grabbed holiday deals earlier than usual. Some large retailers, including Walmart and Home Depot, reported strong third-quarter profits, buoyed by sales of less discretionary goods like groceries or items related to home improvement and DIY projects. “Households are still spending money because they can,” said Aneta Markowska, chief financial economist at investment bank Jefferies. “I still think there’s a lot of uncertainty about next year because obviously the Fed has raised rates very aggressively this year and we haven’t really felt the effects of that yet.”

But several retailers said they saw demand for their products slow during the month, and when shoppers shopped, they seemed driven by sales. Some companies have lowered their financial outlook or refused to provide forecasts for next year outright to avoid being caught off guard.

This wasn’t how the end of this year was supposed to be. For two holiday shopping seasons, retailers have battled pandemic disruptions. Now that the virus restrictions and supply chain grunts that defined those times have largely eased, retailers expected a return to normal.

Instead, retailers find themselves trying to get ahead of a likely economic downturn.

To attract bargain-hungry shoppers and displace unwanted inventory, many companies are promoting “value,” offering steep discounts and lower prices than last year, even as labor costs work remain high. Many started their holiday blitzes early in hopes of kick-starting sales. Target held Deal Days in October and Old Navy launched a “Sorry, Not Sorry” holiday campaign. “Value clearly matters to everyone,” Best Buy chief executive Corie Barry said in an earnings call last week.

At JC Penney, stores returned at 5 a.m. on Black Friday, promoting “pre-inflate prices” for items like Instant Pots, clothes irons and coats.

Jeff Gennette, chief executive of Macy’s, said a feature on its website that lets users browse freebies priced between $15 and $100 seemed particularly tempting to shoppers.

“If you have an item that competes with the competitor and your price is higher, you have to make those adjustments,” he said.

Retailers attempt to remove any barriers between a buyer and a potential purchase. Jill Timm, chief financial officer of Kohl’s, said the chain was offering more personalized offers to shoppers, as well as clear discount amounts on certain items to prevent customers from getting confused “because they had to do the math”.

Kohl’s “really makes sure the offerings we provide are meaningful to the customer to drive their behavior,” Ms. Timm said.

The signage value is part of the overall strategy of Primark, an international clothing retailer, as it seeks to increase its presence in the United States.

At a newly opened store in a mall in Garden City, NY, Primark executives pointed to large signs that advertised $11 hoodies, $4 biker shorts and $20 for a blue bag baby with Stitch from the Disney movie ‘Lilo and Stitch’ – and noted that a candle, at 90 cents with no holiday discount, is cheaper than at Walmart.

“It must be a very clear moment when you enter into this perception that there is incredible value throughout the store,” said Kevin Tulip, US President of Primark.

Shoppers seemed price-conscious on Black Friday and throughout the weekend.

Retailers lowered online prices of goods like toys, electronics and computers, according to data released Friday by Adobe Analytics. According to data from Adobe, discounts on sporting goods and TVs were much bigger this year than last, and clothing prices were slightly lower this year. The average discount for Black Friday deals in the US was 30%, according to Salesforce. In 2019, Salesforce said, the average discount rate for Black Friday was 33%.

On Friday, in-store sales were up 12% from a year ago and online sales were up 14% from 2021, according to Mastercard SpendingPulse data released Saturday. These sales included spending not only in retail stores, but also in restaurants.

Yet not everyone was satisfied. On social media, people complained that the Black Friday deals weren’t as big as they expected.

In San Francisco, Riz Gordon, 24, woke up at 6 a.m. on Friday to go shopping with her parents and younger sister. Going to the shops that day is “a long family tradition,” she said, and they had already picked out stocking stuffers and small gifts. But inflation was on their mind.

“Prices are very different from 10 years ago,” Ms Gordon said.

On Sunday at a Target in Springfield, Illinois, DJ Baggerly, 69, made a quick trip for one last Christmas present: a white knit blanket. She’d spent the weekend mostly shopping online, going through her grandkids’ wish list.

Ms Baggerly lives on a fixed income, and the higher prices for petrol and groceries, she said, have been “ridiculous”. When asked if she plans to cut spending in the coming weeks, she replied, “Oh yeah. I’m finished.”

Ben Casselman and Kalley Huang contributed report.

#retailers #woo #holiday #shoppers

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