A Sluggish Growth for U.S. Holiday Sales
Every year, the festive season glares brightly with anticipation. One couldn’t help but notice the latest projections, however, hinting at a somewhat dimmer outlook for sales growth in the U.S. this year.
A Glimpse at the Numbers
S&P Global Ratings postulates a slowdown in the U.S. holiday sales growth, expecting merely a 3% uptick compared to last year’s 4.7%. This projection slides quite below the 10-year average of 5.3%, casting a shadow on the usual holiday enthusiasm (S&P Global Ratings).
Retailers at a Crossroads
The warning extends to retailers profoundly dependent on discretionary consumer spending. Within the next 24 months, such retailers face increased chances of a credit rating downgrade. Notably, apparel and specialty retailers have been witnessing a surge in negative ratings over the past year.
Factors at Play
The forecast is shaped by inflation, which, though declining, continues to loom over household budgets. A late Thanksgiving holiday further adds to pressure, slicing away five precious shopping days from the calendar this year.
Retailer Tactics
Anticipating a mellowed holiday performance, retailers are likely to bet on deals to boost sales, according to S&P analysts led by Lauren Slade. Increased expenditure on advertising seems inevitable, serving as a magnet to draw attention amidst dwindling traffic.
Sector Performance Variation
The holiday sales performance is expected to fluctuate across sectors. Value retailers aiming at middle and higher-income consumers might fare better, thanks to greater foot traffic from bargain-hunting shoppers. Giants like Target and Walmart will likely shine, leveraging their prowess to offer value.
High Stakes for Some
In an interesting list, S&P identifies 33 retailers and apparel producers significant for their reliance on holiday sales. Victoria’s Secret & Co. tops the chart, with 90% of its yearly profit generated during the fourth quarter. Macy’s follows in third place, securing 65% of its profit during the same period. Without a pleasant holiday buzz, credit ratings for these stores could wobble under pressure.
Varying Consumer Preferences
Meanwhile, consumer electronics and home furnishing retailers anticipate softer demand. They’re likely to plunge into promotional waters to spark sales. A report from the U.S. Census Bureau highlights that November and December retail sales peaked at 16% growth in 2021, only to nose-dive since.
A Race Against Time
Kicking off from October, retailers like Amazon, Walmart, Target, and Best Buy have fashioned holiday promotions well in advance of Black Friday. This strategy is crucial as Black Friday and Cyber Monday sales anticipate reaching a staggering $75 billion (Bain & Co).
Retailers’ Strategies for the Future
Retailers eye an opportunity to pull sales forward, facing cautious consumer behaviour due to a packed holiday window and the election year chaos. Price-sensitive consumers will propel ongoing promotions and discounts, which may shrink profit margins. To counteract, many retailers are deploying cost-saving measures and adopting a conservative inventory strategy to stabilize profit margins.
A Broader Outlook
The holiday outlook echoes the sentiments of a recent report by the National Retail Federation. Despite existing contradictions in economic indicators, they predict a 2.5% to 3.5% increase in holiday sales.
Thus, as holiday shoppers embrace the spirit of the season, retailers find themselves bidding on sharp strategies, hoping their efforts will pay off amid this challenging economic backdrop.
