Retailers brace for tougher times and more frugal customers in 2023

January is often an overlooked month for retailers.

Buyers make returns and exchanges. They go to stores with gift cards in hand. And they can buy exercise clothes or other items to carry out New Year’s resolutions.

But this year, January brings more risk. The next few weeks, the end of the financial year for many retailers, could help determine if the holiday quarter is a winner or a loser. This is also an important time to help stores clear out excess inventory. January could also set the tone for 2023 — when some economists and retail watchers predict the US will slip into a recession.

So far, the early holiday results have been better than feared by some economists and retailers. Sales between November 1 and December 24 grew 7.6%, according to data from MasterCard SpendingPulse, a measure of online and in-store retail sales across all forms of payment. . This number includes restaurants and is not adjusted for inflation, which was up 7.1% year-on-year in November.

However, there are signs that shoppers may be running out of gas. Credit card balances have increased. The personal savings rate has fallen. And sales of high-value items like jewelry and electronics have waned.

Plus, Americans’ overspending in the early years of the pandemic, fueled by stimulus money, boredom and out-of-pocket savings, made tough comparisons.

Retailers enter 2023 with the fact that store traffic has been slow during the peak weeks of holiday season.

Across six retailers — Walmart, Target, Best Buy, Nordstrom, Kohl’s and Macy’s — traffic drops an average of 3.22% annually in the weeks between Black Friday and Christmas week, according to data from Placer .ai, an analytics firm that uses anonymized data from mobile devices to estimate total visits to locations. It is also down nearly 5% from pre-pandemic samples.

Now retailers have more advantages.

“It looks like many brands are anticipating a bigger hit in January,” said Stacey Widlitz, president of SW Retail Advisors, a consulting firm.

She has noticed many retailers are hanging up gift cards to increase sales. Eg, urban clothingThe retail chain owned by s Anthropologie on Friday offered $50 off a future purchase to online shoppers spending $200 or more. But that bonus must be used by January 31, when the company’s quarter ends.

Widlitz says those deals are focused on getting shoppers to make a purchase during what’s usually a lull after the holiday season. It is also retailers’ last chance to sell off excess inventory and start the new financial year in a cleaner location.

“It looks like they’re trying to push people to the stores after the new year,” she said.

But for some people, a more budget-sensitive consumer could be an opportunity.

During an earnings call last month, Walmart Chief Executive Officer Doug McMillon said he expected sales to increase as consumers feel the stress of holiday spending. Like many other retailers, Walmart’s holiday quarter includes January.

“Sometimes these quarters come when the end of December and January end stronger when people are particularly sensitive to prices,” he said. “So that’s kind of what I was expecting.”

Now, the discount company has attracted more affluent shoppers with lower-priced groceries and household items. Over the past two quarters, about 75% of the additional market share in the food sector has come from households earning more than $100,000 a year.

However, like competitors Target and Costcoit has had a harder time selling discretionary goods that tend to be more profitable than selling milk or tissues.

On the plus side, unemployment is low and the job market remains tight, said Michael Zdinak, chief economist at S&P Global Market Intelligence. Signs that inflation has cooled down Prices rose less than expected in NovemberMost recent month of federal data available.

On the other hand, he said food prices are still high, retail demand is waning and savings are unlikely to be strong.

The personal savings rate has dropped dramatically. According to the US Bureau of Economic Analysis, the percentage of disposable income that people save was 2.4% in November. That is down from the pre-pandemic average of 6.3%. S&P Global Market Intelligence, which processed the numbers from 1991 to 2019.

Zdinak says the low rates are unsustainable, especially as consumers have spent the money they deposited into their savings accounts in the first months and years of the pandemic.

Economists at the market data firm predict a recession to begin in the first quarter of 2023 and last two quarters.

Zdinak said the downturn will be fueled by cut orders and less production as more retailers release unwanted inventory following a sudden shift in consumer preferences in 2019. 2022.

Then there are headwinds for consumers. SW Retail Advisors’ Widlitz said reality could soon hit families who have splurged on gifts or gone on vacation.

“Everybody goes through the holidays in denial and February 1st, when you get [credit card] statement, or January 15, whenever it comes, it’s like, ‘Oh!’,” she said.

— Caitlyn Freda contributed to this report.