Despite December Slow Down In Consumer Spend, Holiday Sales Were Up 8.3%
Retail trade sales in December were down slightly compared to November (seasonally adjusted) at minus 1.2% but showed a healthy increase over last December at 5.2%. “While economic factors like higher prices and interest rates may have factored into the December dip, let’s also remember the goalposts keep moving as to when the holiday shopping season begins,” stated Jonathan Silver, CEO of Affinity Solutions.
Since the pandemic, there has been a decrease in consumer spending in December compared to November. In 2021, December sales were down 1.2% compared to November, demonstrating a shift in how consumers shop for holidays. For the past few years, retailers have been starting holiday promotions as early as October, which has elongated the holiday selling season. Total holiday sales, including October through December, were up 8.3% compared to 2021.
October through December sales were up
Holiday sales were strong despite inflationary pricing and economic concerns. When evaluating the holiday selling period from October through December, most categories performed better than last year, including apparel and accessories, discount stores, warehouse clubs, home improvement centers and grocery stores. Non-store sales, including e-commerce, were 9.8% higher than last year for the same period. “Our data showed many discretionary categories like sporting goods, hobby, musical instruments, and bookstores were up 20% year-over-year, which tells us consumers may not be pulling back too much,” said Silver. Categories that fell short this holiday season were department stores, electronics/appliance stores and home furnishings.
NRF weighs in on November and December sales
Retail sales for November and December combined grew 5.3% over 2021, according to the National Retail Federation (NRF). “The last two years of retail sales have been unprecedented, and no one ever thought it was sustainable,” NRF president and CEO Matthew Shay said. “Nonetheless, we closed out 2022 with impressive annual retail sales and a respectable holiday season despite historic inflation and interest rate hikes to cool the economy.” NRF’s calculation of retail sales excludes automobile dealers, gasoline stations and restaurants to focus on core retail. NRF defines the holiday season as November 1 through December 31.
“We knew it could be touch-and-go for final holiday sales given early shopping in October that likely pulled some sales forward plus price pressures and cold, stormy weather,” said Jack Kleinhenz, chief economist for NRF. “The pace of spending was choppy, and consumers may have pulled back more than we had hoped, but these numbers show that they navigated a challenging, inflation-driven environment reasonably well. The bottom line is that consumers are still engaged and shopping despite everything happening around them.”
Shifting shopping behaviors
“Despite economic uncertainty, consumers continued to spend during the 2022 holiday season,” stated Tom McGee, president and CEO of ICSC (International Council of Shopping Centers). McGee discussed how persistent inflation and economic concerns shape shopper behaviors but said, “There are signs of resilience across the marketplaces industry. Consumers continued to embrace in-store shopping and took advantage of deals and promotions throughout the season.”
McGee discussed how consumers enjoyed shopping at brick-and-mortar locations this holiday season, as about three-quarters of those surveyed by ICSC visited some type of shopping center. “Shoppers place a premium on convenience and the ability to make purchases from multiple stores in one stop while also being able to see and feel products before buying. These behaviors remain a draw to malls and open-air shopping centers,” said McGee. Malls performed well this holiday season, with almost half of the surveyed consumers reporting that they visited a traditional mall. Meanwhile, 42% shopped at neighborhood, community and lifestyle centers.
Hybrid shopping remains strong
Consumers leaned into hybrid shopping models this holiday, as evidenced by online sales growing 9.8% from October through December compared to last year. When customers buy online and pick up in-store (BOPIS), the sales are shown as online revenue. Nearly one out of every five online orders placed this holiday season globally were by customers using the BOPIS option for purchasing merchandise.
“Customers were much happier with the integrated shopping experience this year compared to the past. Retailers have made investments in hybrid shopping options, like BOPIS, so the journey for the customer is more seamless,” said Erin Halka, senior director of industry strategy at Blue Yonder.
Heavy inventory position means more discounts and fewer profits
Retail trade inventories have been higher all season, with the total stock up 20.6% from August through November. Many retailers started promotions by the first week of October to help move some of the overstocked inventory. At the end of November, total retail inventory (excluding cars) was up by 14.8% over last year, an improvement from the beginning of the season. “The challenge with too much inventory is that it results in more discounts, and while this benefits consumers, it impacts the retailer’s profitability,” said Mark Mathews, vice president of research development and industry analysis for NRF.
The outlook for 2023
“Let’s not overlook the 6% increase from last December, which tells us people are still spending, which keeps us optimistic about the economy in 2023,” said Silver. At a press conference held at the NRF Big Show around the outlook for 2023, Mathews discussed how the consumer price index (CPI) increased 6.5% over the last 12 months, but the CPI increase over the previous six months was only 1.9%. Mathews stated, “Keep in mind that the CPI is heavily weighted by rental and housing costs which represent 33% of the total.”
Both Mathews and Silver were optimistic about the retail sector for 2023. “We have seen a 6.8% increase in consumer purchasing for December with an increase of 11% online,” said Silver at the press conference. Affinity solutions collect both purchasing and payment data across many categories and customers. “The retail sector has grown 20% since the pandemic,” said Silver.
“The holiday season is an important springboard for retailers as we head into 2023,” said McGee. Retail sales rose 8.3% year-over-year, demonstrating that consumers continue to spend. Customers returned to stores, and food and beverage sales increased notably over the holidays, up 13% from 2021. “If the job market stays strong and the recent uptick in consumer confidence holds, we expect these factors to continue to drive consumers to restaurants, stores and experiences in 2023,” stated McGee.
Hybrid shopping, inventory management and sustainability remain a focus
Hybrid shopping models, including BOPIS and mobile purchasing, will continue to be a prominent consumer behavior. Many shoppers start their journey online with a website visit, and retailers offer more options for purchasing products, including picking up items in a store, shipping to a customer’s home, or using curbside services. “Retailers are addressing these new shopping behaviors and delivering on their promises, thereby cultivating a more loyal customer base,” stated Halka.
Retailers will work towards having better controls on inventory and inventory visibility. Halka described that having a better knowledge of stock, using marketplaces to fill in gaps in products from other vendors, and learning from past mistakes all help to create a better experience for shoppers.
Finally, public companies will continue to be held accountable into 2023 for sustainable purchasing and return practices, according to Blue Yonder. “Transparency goes beyond how and where products are made; it includes how goods are shipped, transportation methods, choices in how orders are fulfilled, and greater efforts in reducing the carbon footprint of returns,” said Halka.