E-Commerce

2023 Holiday Sales Outlook Not Making Merchants Merry

e-commerce retail merchant worried about sales
2023 holiday season sales are predicted to be lackluster amid mixed economic indicators and increased reliance on discounts. Analysts forecast modest growth but caution against weak consumer spending due to factors including high-interest rates, student loan payments, and debt limits being reached.

It’s never too early for a retailer to start thinking about the holiday season, although this year, they may want to delay thinking about it a while longer. That’s because prognosticators are predicting a lackluster holiday sales season in 2023.

“In general, expectations are pretty low,” said David Swartz, an equity analyst with Morningstar Research Services in Chicago.

“However, last year’s holiday season wasn’t very strong, either,” he told the E-Commerce Times, “so I think we’ll see growth over last year, but it’s not going to be strong.”

Last year, the National Retail Federation (NRF) pegged holiday retail sales at US$936.3 billion, a 5.3% increase over 2021.

“If you look at last year’s holiday sales results, there was year-over-year growth in terms of total revenue, but it was attributed to price increases rather than consumers purchasing more goods,” explained Kassi Socha, a consumer and culture analyst at Gartner, a research and advisory company based in Stamford, Conn.

“I think we’ll see that same trend in 2023,” she told the E-Commerce Times.

Chutes and Ladders

The economy is exhibiting mixed indicators for consumers, noted John Mercer, head of research and a retail analyst at Coresight Research, a global advisory and research firm specializing in retail and technology.

“It’s like a game of chutes and ladders,” he told the E-Commerce Times. “Consumers have been climbing some ladders — strong labor market, inflation falling — and falling down some chutes — higher interest rates, the threat of student loan payments.”

“The average student loan payment is expected to be about $200 a month,” he explained. “That is a meaningful chunk of discretionary spend for a lot of consumers.”

He noted that Coresight is projecting a low, single-digit growth for U.S. holiday sales this year.

He predicted e-commerce would continue to show strong growth. According to the NRF, online and non-store sales during the 2022 holiday season reached $261.6 billion, a 9.5% jump over 2021.

“We expect e-commerce to gain more share of holiday quarter sales and outpace total retail sales growth during the quarter,” Mercer said. “It always performs well during the holiday quarter because it’s the channel that consumers turn to for a large part of their holiday shopping.”

Consumer Reckoning

Consumers are facing a reckoning that might affect many of them during the holiday season, asserted Rob Enderle, president and principal analyst with the Enderle Group, an advisory services firm in Bend, Ore.

“People continue to buy despite the high-interest rates and near out-of-control debt,” he told the E-Commerce Times. “Eventually, those chickens will come home to roost. It isn’t a question of if. It is a question of when and how bad it will be.”

“Right now, it does look like it will hit this season, as people are starting to hit debt limits, but right now, it doesn’t look catastrophic,” he said.

“This could be offset by aggressive cost-cutting, which, in turn, would do ugly things for retailers’ margins,” Enderle suggested.

Retailers looking for good news about their potential holiday sales can find it in the special deals held by Amazon, Walmart, and Target.

“The success of those sales is telling us that the consumer is still interested in purchasing, but they may hold out for the right promotion or price before pulling the trigger on a purchase,” Socha said.

“Retailers may take what they learned from those sales and apply them to holiday promotions,” she added.

Dire Threat of Debt

According to a survey performed by Gartner for this year’s second quarter, consumers are increasingly looking for discounts before they decide to make a nonessential purchase.

Gartner noted that 62% percent of U.S. consumers surveyed were more likely to delay a nonessential purchase until a discount was available compared to a year ago.

“I expect discounting to be very aggressive this year to offset the reduced buying behavior of consumers,” Enderle said.

“The risk is that with debt limits being reached, even with discounts, a lot of people may have to sit this season out,” he continued. “If that number is larger than I expect, the outcome could be dire.”

A factor driving discounts last year was swollen inventories. That’s not the case this year.

“Inventories are coming down from inflated levels last year, which will result in less discounting and more full-priced sales,” explained Mercer.

“Inventories are improving,” Swartz agreed. “They were in bad shape last year going into the holiday season, as well as the end of the season when they were too high.”

“Most of the companies I cover have been reducing their inventory this year and are planning to get it into better shape by the end of the year,” he continued. “That’s a positive.”

“That will affect discounting,” he acknowledged. “We have seen high discounting this year, generally, but inventories are improving, so I don’t think it will be as bad for retailers as it was last year during the holiday season.”

The Lipstick Effect

Adhish Luitel, senior analyst for supply chain management and logistics at ABI Research, a global technology intelligence firm, noted that retailers are now much better equipped to handle holiday shortages.

“The state of the global economy has definitely forced them to make adjustments to their ordering habits for their Black Friday or Cyber Monday inventories,” he told the E-Commerce Times. “Retailers now are more careful with how they assess their inventory needs and are more mindful with procurement decisions.”

“Large retailers are making their inventories more lean,” he added. “Target recently said their inventories are 18% lower compared to last year.”

While demand may be soft for some items, like electronics, appliances, furniture, and home furnishings — all in demand during the pandemic — some categories of items will shine.

“Watches and jewelry will be better-performing categories, as customers are going for the ‘less but better quality’ purchases,” Luitel said.

“We expect beauty to be a standout category,” added Mercer.

“Consumers keep increasing their spending on beauty,” he observed. “It could be the ‘lipstick effect,’ where in tougher times consumers turn to smaller treats like lipstick.”

“There’s also more concern with self-care as people return to offices and socialize more,” he said.

John P. Mello Jr.

John P. Mello Jr. has been an ECT News Network reporter since 2003. His areas of focus include cybersecurity, IT issues, privacy, e-commerce, social media, artificial intelligence, big data and consumer electronics. He has written and edited for numerous publications, including the Boston Business Journal, the Boston Phoenix, Megapixel.Net and Government Security News. Email John.

Leave a Comment

Please sign in to post or reply to a comment. New users create a free account.

More by John P. Mello Jr.
More in E-Commerce

E-Commerce Times Channels