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Consumers kept spending in October, helping lift retail sales nearly 6% year over year in the segments covered by Retail Dive, according to a report from the U.S. Department of Commerce. Shoppers “set aside concerns about inflation and many got a jump start on the holiday season,” according to a note on the numbers from the National Retail Federation.

In fact, inflation showed some signs of easing last month, and that impacted shopping for discretionary goods, according to Morning Consult.

“This is another welcome sign that the substantial hits to purchasing power that we saw over the summer in Morning Consult’s Consumer Purchasing Power Barometer may be fading, which bodes well for the upcoming holiday shopping season,” Scott Brave, Morning Consult’s head of economic analytics, said in a statement.

Many shoppers are turning to credit cards and their savings to fund their holiday budgets, and that’s not sustainable, experts warned. But their resilience is also helped by continued strong employment numbers, according to the NRF and others.

“With employment and wages growing and shoppers accessing accumulated savings, we expect the trend to continue,” NRF Chief Economist Jack Kleinhenz said in a statement. “Early holiday deals that enticed customers appear to underlie the October numbers and more promotions will be seen in November and December, which are historically the big holiday shopping months.”

Black Friday is still around the corner, though several retailers including Amazon, Target and others held early sales in hopes of capturing the attention of still-wary consumers. That didn’t really garner many extra sales in October, as the healthy year-over-year rise represents a decline in volume, according to GlobalData research.

“While the discounting likely helped sales somewhat, it clearly hasn’t acted as a major stimulant for consumers,” GlobalData Managing Director Neil Saunders said in emailed comments. “If this pattern holds for the remainder of the holiday season, retailers may end up giving away a lot of margin simply to generate meagre gains. This will have a chilling impact on the bottom line.”

Apparel sales rebounded for a while this year as events resumed and more people returned to the office, but the segment saw sales rise just 2.5% in October, according to the government’s numbers. The question remains whether the holidays will serve as another excuse to update wardrobes.

“The hope will be that after a lull in October, consumers will splash out a little as the holidays approach and they look for outfits for events and occasions,” Saunders said. “Whether this materializes remains to be seen.”

Inflation is playing havoc with consumer behavior and muddling the numbers. The NRF expects retail sales in November and December to grow somewhere between 6% and 8% compared to last year. Insider Intelligence similarly expects total holiday retail sales to grow 7%, much slower than last year’s 15.4% growth, with Black Friday sales approaching 4% growth.

“We expect holiday season sales to post strong growth by historical standards, although gains will be driven almost completely by inflation,” Andrew Lipsman, principal analyst at Insider Intelligence, said in a statement. “Many consumers will trade down and become more responsive to discounts this holiday season, but overall consumer demand remains healthy despite the negative headlines.”

The escalating reliance on credit and savings to fund purchases and the penchant for heavy discounts serve as warning signs for the rest of the year and even into 2023. Despite the clues found in October’s retail sales, however, this holiday season remains a mystery. 

“Overall, the solid numbers suggest that retail is coping relatively well in a more challenging environment. However, cracks are starting to show, and they seem to be becoming larger just as the sector enters its most critical trading period,” Saunders said. “We remain optimistic that retail will perform reasonably in sales terms in the golden quarter, but it is clear that retailers will need to fight for every cent and will likely make far less profit from what they manage to take.”



Read More: The holiday clues in October retail sales

2022-11-21 17:24:00

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