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The holiday shopping season has been disappointing.
Mario Tama/Getty Images
After working two years overtime to deliver record-breaking holiday seasons, Santa Claus is fed up. If 2022’s holiday retail sales are to continue, the president of the Arctic has jumped on the quietly leaving bandwagon.
Even though holiday sales fell 6.7% from October to December, lagging behind the average inflation rate of about 7.1%, the man in the red suit probably did enough to reassure the market that the economy wasn’t in complete freefall. in the same period. But that’s as good as it gets, as inflation and a weakening workforce curb shoppers’ appetite for splurge.
The muted sales figure won’t do much to feed retailers’ booming hopes for fourth-quarter results, and it certainly doesn’t provide a reassuring springboard for retail sales in 2023.
The National Retail Federation, a trade group that publishes annual holiday sales forecasts, estimated that core holiday sales in November and December rose 5.3% to $936.3 billion, below the 6% to 8% growth forecast.
“The pace of spending was volatile and consumers may have pulled back more than we expected, but these numbers show they’re doing pretty well in a challenging, inflation-driven environment,” NRF chief economist Jack Kleinhenz said in a statement.
Before the holiday season, Barron’s He reported that retailers and forecasters, including Kleinhenz, are having trouble figuring out how much consumers will spend during the holidays due to skyrocketing prices and general economic volatility. The sales figures help clear up the picture, but tell only half the story. Holiday performance can vary widely from retailer to retailer and depends on other factors, including cost management and consumer spending patterns.
Performance this year will also depend on how well retailers manage their inventory and whether they have to discount aggressively to get rid of product surpluses. Mike Graziano, senior consumer products analyst at RSM US, says with sales poised to slow, investors will focus on how these factors affect margins and financial fundamentals as we enter the earnings season.
Graziano was optimistic about the outlook for beauty and wellness companies after the holidays, as well as luxury products. Electronic home goods and general apparel companies may have a tougher time, according to December retail sales. Electronics sales fell 5.6% year-on-year in December, while furniture and clothing categories posted slight increases of 0.3% and 2.9% yoy, respectively.
However, preliminary reports from retailers indicate that the industry will see performance divergence this quarter, even in the same subcategory. For example, clothing companies
American Eagle Clothes
(
AEO
) and
Abercrombie & Fitch Co.
(
ANF
) both said the last month of the year would give an unexpected boost to their fourth-quarter results. Meanwhile,
Macy’s
(
M
) said the holiday season saw a recession in shopping, except on the busiest shopping weekends, and
Lululemon Athletics
(
LULU
), warned that fourth-quarter gross margins would come under pressure.
“Because the retail industry is fragmented and the consumer is so unstable, it’s difficult to take top macroeconomic forecasts and translate them to a company-specific level,” said Mari Shor, senior equity analyst at Columbia Threadneedle. “It really depends on the category and brand strength.”
This isn’t necessarily a bad thing. The difference can make it easier for investors to weed out the winners and losers of the holiday season. And given that few analysts see the challenges plaguing retailers in 2022 will dissipate in the first half of the new year, the earnings period will be all the more important to assess which industries and companies are well positioned to weather another turbulent year with a softer consumer. appearance.
Many of the factors that dampen consumers’ appetite for spending are the same suspects as last year: high inflation and rising interest rates. But while consumers were able to put these issues aside for much of 2022, driven by a strong labor market and pandemic savings, they may not be dismissing them so quickly this time around.
“Real disposable income is deeply in negative territory,” wrote Tom Porcelli, chief US economist at RBC Capital Markets. “While we acknowledge that other factors such as credit utilization and savings helped sustain consumption through most of 2022, it appears that the consumer is starting to become more cautious.”
Both vacancies and wage increases softened in response to the Fed’s tightening plans, with accelerating layoffs in the tech and finance sectors. Meanwhile, pandemic savings and stimulus payments have dispersed, and some consumers are either starting to cut back on spending altogether or turn to credit cards to finance their shopping habits. Emily Roland, co-chief investment strategist at John Hancock Investment Management, says there will eventually be a point at which consumers will avoid taking on more debt, especially if layoffs continue to rise.
Consumer health is at the center of the debate on Wall Street over whether the economy is heading for a soft or hard landing as the Federal Reserve continues to tighten monetary policy to curb inflation.
The bulls – including various Fed officials – argue that the economy and consumers are doing better as inflation cools, as markets trust them. But there are still many who are concerned about the serpentine cracks in the economy.
“Fed remains determined to fight core inflation”
Citigroup
CEO Jane Fraser in conversation with investors. “So we continue to see the US enter a moderate recession. [the second half]”
Many other major banks including
Bank of America
(BAK) and
JPMorgan Tracking
(
JPM
), they also predict a slight recession sometime this year.
Whether or not retail sales continue can go a long way toward tipping the balance in some way.
Write to Sabrina Escobar at [email protected]
