Back-to-school outlook: What can we expect for holiday shopping?
REAL ECONOMY BLOG | August 24, 2023
Authored by RSM US LLP
In our four-part blog series, RSM’s senior industry analysts explore back-to-school shopping trends and the impact on consumer businesses.
Many analysts use back-to-school shopping as an indication for how holiday sales will trend, a theory confirmed on Walmart’s recent earnings call.
If July’s retail sales are any indication, holiday sales will be focused on individual product categories and consumer spending by income level.
If July’s retail sales are any indication, this year’s holiday sales will be largely focused on individual product categories and consumer spending by income level. July had both nominal and real year-over-year growth from top-line retail sales, core retail sales and nonstore retailers.
But at the category level, apparel, general merchandise and recreational product retailers are experiencing real sales contraction, even at a time when nominal sales have grown. This is most likely because of deeper discounts required to reduce high inventory and a broad pullback in these categories after heavy spending during the pandemic.
Despite a recent increase in consumer debt levels and the resumption of student loan payments in the fall, consumers continue to spend, supported by the growth in household assets over the past three years.
It is more likely that any pullback in goods spending this holiday season will be driven by fatigue rather than an inability to spend as consumers continue to shift spending toward travel and experiences, and away from products.
It remains to be seen what, if any, impact the resumption of student loan repayments will have on overall spending. There are still options for people to delay some payments, and it is also important to note the oft-cited $1.5 trillion of outstanding debt will not come due at one time; consumers will continue to evaluate monthly budgets as payments come due.
While a subset of consumers may be under additional financial stress, the majority of monthly spending is coming from consumers with higher incomes, a group unlikely to be affected by the resumption of these payments.
Retail performance in July was largely driven by discount events, most notably by Amazon’s Prime Day, July Black Friday sales events and others, a strategy that is likely to be repeated during the holiday season.
In our holiday forecast last year, we expanded holiday sales to include October, a trend that is likely to be repeated this year as retailers compete for consumer dollars earlier in the season.
The days of waiting for Black Friday to introduce large-scale discounts appear to be over; retailers that wait until after Thanksgiving for sales events risk further fatigue from consumers.
Earlier spending could benefit wholesalers, most notably apparel companies, which continue to sit on elevated levels of inventory in the event of retailer reorders.
The strong labor market continues to give consumers the confidence to spend each month. The narrative of the consumer being dead or significantly pulling back on spending has not yet materialized. This is not to say a pullback will not happen; rather, we have not yet seen consumers heed warnings of pending financial stress.
An unknown in the labor market is the termination of day care subsidies this fall, which could hurt spending if families must choose between work and child care, particularly at a time when many companies are pushing employees to return to the office.
The holiday shopping season will be shaped by the performance of individual product categories and income levels. Discount events in October will most likely drive early holiday shopping, just as they did last year. Rising consumer debt and the resumption of student loan payments have yet to dampen consumer spending, and it remains to be seen if those factors will be felt during the holiday shopping season.
Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Mike Graziano and originally appeared on 2023-08-24.
2022 RSM US LLP. All rights reserved.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Condley and Company can assist you, please call (325) 677-6251.