With the holiday shopping season kicking off, economists are predicting cautious consumer behavior amid inflationary pressures. Both Canada and the U.S. are witnessing trends where shoppers are expected to spend cautiously this year as they navigate high prices and economic uncertainty.
Statistics Canada recently noted the inflation rate had climbed back to 2% as of October, which, albeit within the Bank of Canada's target range, presents challenges for consumer spending. Mark Parson, the chief economist for ATB, mentioned, "While Canadians might spend somewhat more than last year, last year’s spending was affected by significantly high interest rates and inflation, making it hard to see this year's decisions as purely positive."
Around the same time, American consumers seemed eager to embrace holiday spending but tempered their excitement due to inflation concerns. The Conference Board reported Americans are ready to open their wallets this season, yet they remain cautious. "This year, shoppers plan to spend more than they did last year, but inflation reduces how far their dollars can go," they noted.
Overwhelmingly, consumers are bargain-hunting. Recent surveys have shown 35% of Americans intend to increase their holiday spending budgets, yet nearly two-thirds would pass on purchases if the items aren't sufficiently discounted—a mandate for more than 20% off to catch their interest. Unemployment rates remain low, but inflation’s persistence at 2.6% during October stirs underlying anxiety among shoppers.
Alberta economists forecast similar behavior from Canadian consumers. Moshe Lander, also from Concordia University, emphasized the pivotal issue at hand: wages. “The average Canadian's wage has lagged behind the inflation rate for most of the past two years,” he stated, highlighting concerns where falling purchasing power leaves many consumers unable to keep up with rising costs of goods.
The cost of living remains under scrutiny. According to Lander, the price of goods has increased by 20% over the last four years, meaning consumers with only nominal raises find themselves struggling to maintain their standard of living. Parson reflected on this mixed bag of economic indicators, acknowledging prices are still high and consumer confidence deeply impacted.
Retailers, gearing up for Black Friday promotions, are faced with challenges as trade activity dwindles. For many, anticipation for discounts is high, yet figures from the e-commerce trade body IMRG reveal alarming data—online sales fell 11.7% for the week leading up to November 10, showing no promising recovery this holiday season.
Last year's shaky economic environment directly led to cautious planning for this year's festivities. Shoppers are starting their preparations later than usual and holding off purchases, leading to what could be termed as 'financially conservative' festivity shopping.
Diane Wehrle, chief executive of retail analytics firm Retail Intelligence and Insights, indicated this trend is starkly evident: “The budget compounded already depleting consumer confidence, and for many, this will be a cautious Christmas. Shoppers are significantly prioritizing price over extravagant holiday displays.” Wehrle predicts modest growth this holiday season, projecting high street sales will only rise by about 0.5% and online growth at 4%.
On the U.S. front, analysts predict moderate growth as well, estimating holiday spending growth of between 2.5% and 3.5% compared to last year, with year-end spending expected to reach around $989 billion. President Biden’s administration has played its part as well, with policies affecting consumer confidence on their minds.
Multiple retailers, especially big-box stores like Walmart, Target, and Amazon have already leapt onto early Black Friday promotional activities, anticipating more cautious spending from individuals. This year's late Black Friday, falling on November 29, leaves less time between Thanksgiving and Christmas, which has historically impacted sales. Still, retailers have adapted to this rhythm, launching discounts as early as mid-October.
Retail analysts assert the impact of Black Friday shouldn't be underestimated; it marks the start of holiday spending and subsequent sales push. Many anticipate higher sales post-Black Friday, particularly for cold-weather gear as winter temperatures hit, which could drive late-season sales. "Over time, we’ve shifted from the idea of Black Friday being just one day to it becoming this lengthy discount period," noted Neil Saunders from GlobalData.
Yet, the psychological effects of the previous couple of years weigh heavy on retail this holiday season. With younger shoppers particularly attuned to price fluctuations and affordability, the current economic atmosphere is anything but conducive for lavish spending. This might explain remarks from retailers like Doug Putman of HMV, who observes how spending is bifurcated—a horizon of items consumers find necessary contrasts sharply with those considered superfluous this season.
Beauty products appear to be thriving, toys struggle, and the same sentiment of balance echoes across many competing retailers. While die-hard vinyl enthusiasts and continual media consumption uphold sales, categories such as furniture may take the backseat.
Black Friday and its adjacent seasons will likely remain popular but require adaptation, as the alteration of shopping habits emerges as necessary. The shift to buying online holds potential to dominate sales, provoking discussions about logistics and delivery costs which shoppers must now factor when deciding how to purchase gifts.
With all these dynamics at play, the picture for this Christmas season is akin to continually shifting sands. Regardless of cautious predictions, some retailers express hope, resting on the possibility of improved consumer sentiment as the holiday nears. A mixture of strategic discounts, consumer adaptability, and changing perceptions will shape how Santa fills his sleigh this year—with budgets finely honed to meet the shifting economic climate, consumers will forgo the wild rush typical of years past.
