Surveys Forecast Strong Retail Q4, But Inflation Has Shoppers Expecting Discounts

Featured Image

Consumers plan to boost their holiday spending this year by 14%, besting pre-pandemic levels for the first time, although shoppers say the price will be the leading factor in choosing where to shop, a trend that should most benefit big box retailers. 

Those are some of the headline findings in two new consumer research reports from First Insight Inc. and Deloitte Consulting.

Despite retailers’ worries about the possible dampening effects of inflation, higher interest rates, rising credit card balances, and the restart of student loan payments, the do-or-die fourth quarter (Nov. 1 to Jan. 31) is shaping up to be better than most retail executives have been projecting.  

The survey results are consistent with a recent report by Forrester Research that consumer spending in June was up 5% year over year. That was slower than a year earlier, but Forrester said it is “not because people are buying less but because they are paying less for what they buy.”

Consumers may be worried about inflation, but in some categories, like food, the real trend year-over-year is more like deflation. 

The chorus of optimism is aligned with other data points, including one in the International Monetary Fund’s latest World Economic Outlook that the US gross domestic product (GDP) since 2019 has exceeded pre-Covid projections. Consulting giant McKinsey recently reported that “consumer optimism in the United States remained steady over the summer, while consumer spending saw a modest uptick across most categories.”

So much for the recession that economists had been predicting for the past year or so.

Also, the handwringing over worrisome trends like the latest report from Fitch Ratings that delinquent auto loans in September hit the highest level in three decades, and the stagnating real estate market as mortgage rates discourage buyers.

So, what keeps the economy humming in the face of all those headwinds? For starters, the $1.2 billion infrastructure bill that Congress passed last year to help blunt the pandemic’s impact is still working its way through the system. As a frequent traveler, I've been to eight airports in the last two months, and every single one had a major construction project underway. Arterial roadways like Pittsburgh and Houston are being ripped up and repaired.

Then there’s the fact that just about anyone who wants to work can find a job and the stubbornly low unemployment rate. Housing costs are an ongoing challenge, with experts predicting high prices and mortgage rates will continue to frustrate homebuyers through the end of the year. But that same trend means millions of households feel flush with home equity and thus more confident about discretionary spending. 

All this good news will be tempered for retailers by pressure on prices and, thus, margins.

In the First Insight survey, consumers said by a large margin that the most significant influence on their shopping choices will be prices and promotional deals.

Explicitly asked what type of store they prefer for holiday shopping, 58% said big box retailers like Target and Walmart. As to what they plan to buy for the holidays, 70% mentioned gift cards.

Brand loyalty is a dominating factor among shoppers. The Deloitte survey of 4,330 consumers found that 76% of consumers “often or always shop at their favorite retailer.”

Not a bad Holiday 2023 retail outlook. Wondering what is in store for 2024…  Report  retail trends  Holiday Shopping  2023

Looking for more info? Complete the form below.