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Home » Retail Execs Brace for a Lean Holiday Season
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Retail Execs Brace for a Lean Holiday Season

News RoomBy News RoomSeptember 1, 20230 Views0
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’Tis the season for reading the tea leaves for clues to how the coming make-or-break retail season might turn out. So far, the betting seems to be on a year that finishes down slightly or on a weak upbeat—a ho-hum holiday.

The vibe in retailers’ executive suites these days is anything but ho-hum. The gossip is starting to sound concerned—interest rates are up, credit card balances are rising, and student loan payments are set to restart! It’s an economic minefield. Just how bad will this year be?

Come January, there will inevitably be casualties (think Bed Bath & Beyond), but the consumer economy neither looks nor feels like it’s about to go off the rails. The likely outcome for the retail industry is closer to ho-hum but with a few twists—a modest increase in sales but narrowing margins.

For starters, it’s been well-documented that consumers are “trading down” on food and other essentials. Shoppers are bypassing national brands and adopting cheaper store brands for their basics. In some demographics, they are skipping non-essentials altogether.

Dollar General
DG
, which operates more than 18,000 variety stores in smaller markets, boosted its produce and consumables offerings and earlier this year reported a stunning sales increase in that category of 22.7%. But sales of higher-margin housewares rose just 3.1%, and apparel sales fell by 7.3%.

Further along the spectrum, e-commerce still hasn’t replaced brick-and-mortar stores, but it has made shopping for price a cinch. One can stand in a Walmart, a BJ’s, or a Costco contemplating the purchase of an air fryer, compare the price with what’s being charged at Target
TGT
, Kohl’s, Amazon
AMZN
, and Home Depot, and order with a competitor.

Consumer spending has been steady this year, but look behind the numbers and see shoppers hedging their bets.

Retailers like Best Buy
BBY
have been especially battered, more evidence that shoppers are shunning discretionary purchases. The company reported a year-over-year revenue plunge of 11% for its quarter ended in April.

The most significant shift in consumer behavior may have less to do with economic uncertainty and more with what people spend money on—travel, dining out, and movies. Lately, it seems everyone is taking vacations again or cruises.

Total year-to-date travel spending was up 4.7% in June, according to the U.S. Travel Association, and air travel demand surged by 12% in June versus a year earlier. Whole families are packing up and taking advantage of promotions to visit destinations abroad, diverting thousands of dollars that last year might have been spent on stuff.

Last year at this time, the predominant forecast was for a recession. One may be ahead, but it hasn’t happened yet. But consumers are skittish, and retailers will have to be on their toes, focused on making sure the products and the prices are right.

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