Retailers Brace for Modest Holiday Season Amid Economic Caution

As the 2023 holiday season approaches, big box retailers are gearing up for what is predicted to be a less extravagant period of consumer spending. A combination of factors, including economic uncertainty and changing shopping behaviors, is influencing this forecast.

1. Consumer Sentiment and Uncertainty: Despite a general improvement in shopper sentiment compared to last year, there remains a pervasive sense of uncertainty about the U.S. economy. This uncertainty is leading consumers to be more cautious in their spending decisions, a critical factor as the holiday season can represent up to 40% of sales for some retailers.
2. Extended Shopping Season with Early Starts: Retailers have responded to consumer behavior by extending the holiday shopping season. Starting promotions as early as September, the goal is to capture consumers who are spreading out their purchases to manage budgets more effectively. However, this extended season does not necessarily mean increased spending, as many consumers are shopping earlier in anticipation of price hikes or waiting for later sales.
3. Trend Towards Trading Down: A significant trend for the 2023 holiday season is consumers trading down. About 79% of consumers report altering their shopping behavior, opting for cheaper alternatives or forgoing purchases altogether. This shift is noted across various demographic groups, emphasizing the need for retailers to focus on value and promotions.
4. Prioritizing Prices and Promotions: With inflation slowing from its mid-2022 peak, price sensitivity remains a top consideration for shoppers. Around 66% of consumers this year are prioritizing better prices and promotions, reflecting the ongoing financial concerns and the desire for value in their holiday purchases.
5. Decline in Splurging: Contrary to previous years, the inclination to splurge on holiday gifts has decreased. Only 35% of consumers plan to spend generously on themselves or others, a decline from 39% in 2022. This trend indicates a more practical approach to holiday spending, driven by broader economic considerations.

In summary, big box retailers are preparing for a holiday season marked by caution and value-seeking behavior from consumers. The economic landscape, coupled with shifts in consumer priorities, is shaping a holiday shopping experience that is likely to be more restrained compared to previous years.