Retailers brace for tougher times and more frugal customers in 2023

January is usually an overlooked month for retailers.

Shoppers make returns and exchanges. They come to the shops with gift cards in hand. And they can spring for workout clothes or other items through New Year’s resolutions.

But this January, the stakes are higher. The next few weeks, which kick off many retailers’ fiscal year, could help determine whether the holiday quarter is a win or a bust. It’s also an important time to help stores clear out excess inventory. January could also set the tone for 2023 – when some economists and retail industry watchers predict the US will slide into recession.

So far, the results for the early holidays have been better than some economists and retailers feared. Sales rose 7.6% from November 1 to December 24, according to data from Mastercard SpendingPulse, which measures in-store and online retail sales across all forms of payment. The figure includes restaurants and is not adjusted for inflation, which rose 7.1% year over year in November.

Yet there are signs that buyers are running out of gas. Credit card balance has increased. The personal savings rate has fallen. And sales of high-end items such as jewelry and electronics have weakened.

Plus, Americans’ spending spree during the years before the pandemic, fueled by stimulus funds, boredom and a shift away from savings, made for difficult comparisons.

Retailers enter 2023 with the fact that store traffic is down during an already busy week holiday season,

According to data from Placer.ai, across six retailers — Walmart, Target, Best Buy, Nordstrom, Kohl’s and Macy’s — sales declined an average of 3.22% during the week from Black Friday through the week of Christmas. Analytics firm that uses anonymized data from mobile devices to estimate aggregate visits to locations. This too has declined by about 5% compared to the pre-pandemic pattern.

Now retailers are on a higher edge.

“It seems like a lot of brands are anticipating big bumps in January,” said Stacey Weidlitz, president of the consulting firm SW Retail Advisors.

She’s noticed that more retailers are dangling gift cards to increase sales. For example, urban outfitterS-owned retail chain Anthropologie on Friday offered $50 off future purchases for online shoppers who spend $200 or more. But that bonus cash must be used by January 31, when the company’s quarter ends.

Widlitz said these offers are focused on motivating shoppers to shop at a time when there is often a post-holiday lull. It is also the last chance for retailers to sell through excess inventory and start the new financial year on a clean slate.

“It looks like they’re trying to push people to come into the stores after New Year’s,” she said.

but for some, a more budget-sensitive consumer There may be an opportunity.

On an earnings call last month, walmart CEO Doug McMillan said he expects sales to increase as consumers feel the pull of holiday spending. Like many other retailers, Walmart’s holiday quarter includes Jan.

“Sometimes these quarters work where people are particularly price sensitive in late December and January,” he said. “So I’m kind of hoping.”

Already, the discounter has attracted wealthy shoppers with its low-priced groceries and household staples. For the past two quarters, about 75% of its market share in food has come from households that earn more than $100,000 a year.

yet like competitors Target And costcoIt had a hard time selling discretionary goods that yielded higher profits than selling milk or paper towels.

On the positive side, said Michael Zdinak, an economist at S&P Global Market Intelligence, unemployment is low and the jobs market is still very tight. There are signs that inflation has cooled Prices rising 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 weakening and savings are not looking as strong.

There has been a significant decline in personal savings rates. The percentage of people with disposable income stood at 2.4% in November, according to the US Bureau of Economic Analysis. That’s down from the 6.3% pre-pandemic average, according to S&P Global Market Intelligence, which crunched the numbers from 1991 to 2019.

Zdinak said the low rate is unsustainable, especially when consumers are spending money in their savings accounts during the first months and years of the pandemic.

Economists at Market Data firm forecast the recession to start in the first quarter of 2023 and last for two quarters.

Zdinak said the downturn in 2022 will be compounded by orders cleared through unwanted inventory and less manufacturing after a sudden shift in consumer preferences.

Then there are headwinds for consumers. The reality may soon hit families who have blown the budget on gifts or holiday travel, said Widlitz of SW Retail Advisors.

“Everyone declines the holidays and February 1st, when you get your [credit card] The statement, or January 15th, whenever it comes, it’s like, ‘Oh!'” she said.

, Caitlin Frieda contributed to this report.