Black Friday signs at a Target store ahead in the US state of Georgia
A Target store with Black Friday signs. The National Retail Federation expects 182mn people to shop between Thanksgiving and Cyber Monday © Bloomberg

Bargain-hunting Americans are expected to turn out in record numbers for the start of the US holiday season, but their fatigue at higher prices is making retailers cautious and putting strain on the nation’s economic engine.

Black Friday — the day after Thanksgiving — traditionally kicks off America’s biggest annual shopping spree with retailers touting alluring discounts. This year, some are planning steeper markdowns to draw inflation-weary consumers into stores.

The National Retail Federation expects 182mn people to shop between Thanksgiving and Cyber Monday. That would be 16mn more people than last year and the most since the NRF began tracking the data in 2017.

Their average outlay over those days will be 13 per cent higher than last year at $567 per person, Deloitte estimates. But spending for the entire season is only set to keep pace with inflation: S&P Global Market Intelligence sees holiday sales growing 3.3 per cent, below the 3.9 per cent pre-pandemic average and the higher rates seen in more recent years.

Despite inflation cooling in October, “cost fatigue — the perception that the cost of everything is higher than pre-pandemic” remains, said Gregory Daco, EY’s chief economist in a report. That is dampening shoppers’ desire to spend.

Line chart of Millions of people showing Number of Americans expected to shop over Thanksgiving weekend

Consumers have surprised economists with their resilience this year, as their spending defied inflation, soaring interest rates, and the resumption of student loan repayments. But the October jobs report showed a softening in labour market trends, and a November poll from the University of Michigan showed consumer sentiment at a six-month low.

The “arsenal of excess savings” households built up during the pandemic is also starting to deplete, Jason Pride, chief of investment strategy and research at Glenmede Trust, noted in a report.

Retailers’ third-quarter earnings reports showed signs of the warier mood. Home Depot and Lowe’s both pointed to a drop in spending on large home-improvement projects, Kohl’s missed sales estimates as spending on non-essentials declined, while Best Buy said demand had been “even more uneven and difficult to predict”.

Walmart, the country’s biggest retailer by sales, went as far as to say it “may be managing through a period of deflation” in the coming months.

Nearly 80 per cent of consumers are looking to “trade down” for holiday shopping this year, swapping planned purchases for cheaper alternatives or forgoing them altogether, a McKinsey study found. The desire to trade down has risen five percentage points from July 2022, even though that marked the moment when inflation hit a 40-year-high at 9.1 per cent.

Retailers have responded by offering much steeper discounts in some categories, according to an Adobe Analytics assessment of ecommerce pricing. Average peak discounts for apparel sold online are up from 19 per cent to 25 per cent, it found, while markdowns on televisions are up from 10 per cent to 24 per cent.

Bar chart of Peak discounts for November and December (%) showing US retailers are offering bigger online discounts this year

The easing of pandemic era supply-chain issues two years ago that left stores with inventory gluts means that some retailers are under less pressure to discount prices. Target noted that its improved inventory position meant it did fewer markdowns, while Walmart chief financial officer John David Rainey told the Financial Times: “I don’t think we expect to have a more promotional holiday period than what we saw last year.”

But S&P expects prices to rise just 0.5 per cent this holiday season, compared with the “blistering” retail inflation of 6.1 per cent seen in 2022.

Even with inflation easing, Stephanie Cegielski, vice-president of research at the ICSC industry group, pointed to an increase in younger shoppers, especially, choosing more flexible buy now, pay later payment options.

Buy now, pay later use online is up 14.5 per cent compared with last year, according to Adobe, which called 2023 a “breakout year” for such short-term financing offers.

Retailers are also placing a heavier emphasis on their more affordable private label brands, said Lauren Beitelspacher, a marketing professor at Babson College. “As a consumer, it’s important to do your due diligence this year,” she said.

The more price-sensitive mood was in evidence among shoppers in midtown Manhattan this week.

“Everything is just so expensive that it’s hard to have any extra money to spend on anything,” said Jack O’Keefe, a 29-year-old banker from New York while perusing Manhattan’s Bryant Park holiday market. He added, however: “I’ll definitely do Black Friday, for sure. I’m still trying to get everyone the best gift I can get, you know?”

“Prices have just become so unrealistic,” echoed Jessica Prenda, 25, a tech consultant from Brooklyn who was shopping at the Macy’s flagship store. “But I feel it more with day to day spending like grocery shopping,” she said. Prenda, who recently lost her job, has cut her holiday gift budget from $2,500 to $400 for her family of four. “It’s a big difference from last year,” she said.

Margaret Ennis, 54, an office assistant from Brooklyn, was planning on cutting her Christmas shopping by half compared with last year because of higher food costs.

“I’m changing what I buy: what is needed versus what I want. Kids always need clothes,” she said while shopping for her grandchildren at Macy’s. It would take a discount of 75 per cent to turn her eye, she added: “Because you can find it, you know. You just have to look. See, I’m a shopper and a couponer also.”



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