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Retailers may see more red after Black Friday | Wisconsin

Retailers are gearing up for another blockbuster holiday shopping season, but consumers, burned by the highest inflation in a generation, may have other ideas.

Industry bodies are predicting another record year for retail sales, with the National Retail Federation forecasting a 6% to 8% increase over the $890 billion consumers spent online and in stores in November and December 2021.

But Jeff Bezos, founder and chairman of the biggest retailer of them all, appears to be anticipating a much less celebratory corporate holiday. In November 2022, Amazon announced it was laying off 10,000 workers, one of several large companies to recently announce job cuts. Bezos even warned consumers to hold back on big purchases like cars, TVs, and appliances to save in the event of a 2023 recession.

The results of our new survey suggest that consumers already appear to be heeding Bezos’ advice as a combination of rising consumer prices, rising borrowing costs and growing chances of a recession weigh on their wallets. And if our survey results are confirmed, it could mean that the recession everyone is worrying about is coming sooner than expected.

crisis behavior

We conducted our survey in mid-November, about a week before Black Friday, the historic start of the holiday shopping season. The day after Thanksgiving is known as Black Friday because it signals the period when retailers hope to sell enough merchandise for their income statement for the year to show “black,” or profit, rather than “red,” which translates to losses.

We asked over 500 consumers a series of questions about their spending plans, concerns and priorities this holiday season. Participants were evenly split between men and women, and nearly two-thirds had household incomes of $70,000 or less.

Overall, the most alarming conclusion of our research is that consumers report typical consumer behavior during an economic crisis, similar to that observed by consulting firm McKinsey during the Great Recession in 2009.

One data point stands out: an overwhelming 62% said they were concerned about their job security, while nearly 35% said they were “very” or “extremely” concerned about their financial situation.

Here are three behaviors we found in our survey that suggest consumers are behaving as if the US economy is already in recession.

1. Spend less

Unsurprisingly, consumers cut spending first in times of economic turmoil.

A McKinsey study in early 2009 found that 90% of US households cut spending due to the Great Recession, with 33% of consumers reporting a significant cut.

Similarly, respondents to our survey said they plan to spend an average of about $700 this holiday season, which is significantly less than the roughly $880 consumers have spent each of the past three seasons – inclusive at the beginning of the pandemic in 2020.

About a third of our sample intended to spend “a little” or “a lot” less than 2021, while 35% said they would spend “about the same” — which, from a retailer’s perspective, means spending less because last year’s dollars aren’t going so far today. The rest said they wanted to spend a little or a lot more.

Inflation is one of the main reasons consumers say they are spending less. Almost 80% of respondents indicated that they are either moderately, very or extremely concerned about the price increase and 87% indicated that these concerns would influence their holiday behaviour, e.g. B. by buying gifts for fewer people or buying cheaper items.

Some of our respondents even indicated that they plan to make their own gifts or buy used goods rather than buying new items. The second-hand market has boomed in recent years, and many buyers see this option as a way to counter inflationary pressures.

2. Planning ahead

Another thing consumers do when they feel a struggling economy is plan their purchases more carefully and exercise self-control over their spending.

Common strategies include spending more time finding the best deals, sticking to strict grocery lists, prioritizing necessities, and making purchases earlier to spread their spend—all of which were mentioned by our survey respondents.

We may already be seeing signs of this last strategy. Retail sales in October rose 1.3% mom and 8.3% compared to October 2021, possibly reflecting early Christmas shopping by consumers. If that’s the case, that early purchase in December could lead to a hit in sales.

Also, early purchase, aided by the plethora of deep discounts on offer well ahead of Black Friday, allows consumers to better control their shopping behavior and reduce the risk of impulse purchases. The reduction in impulse buying is a strong indicator that consumers are shopping as if the economy is in recession.

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In our survey, we found that over 50% of participants said they would cover their holiday expenses with savings, with many emphasizing that they would pay with cash. Using cash as their primary means of payment is the primary tool consumers have to control their spending.

Only 15% of our respondents said they would use buy-it-pay-later options, which we think is another sign that consumers prefer cash over forms of credit that create new debt.

3. Price hypersensitivity

During economic crises, consumers become hypersensitive to prices that trump most other considerations in consumers’ minds.

A whopping 90% of our respondents confirmed that price is the most important consideration when shopping this holiday season. Other elements of price sensitivity include free shipping, product value, and the size of the discount, if any.

Consumers’ unique focus on price offers retailers a wide range of possible responses, including promoting house brands and private labels that are perceived to be less expensive. In fact, according to the 2009 McKinsey report, one of the biggest shifts in consumer behavior during and after the 2008 recession was the shift from high-price premium brands to high-end brands, which tend to have lower prices but still decent quality. During an economic downturn, consumers typically stop buying brands they aren’t strongly associated with or loyal to.

Consumers in our survey said buying brand names will be one of the least important influences on their purchases this season.

As economists debate whether a recession is imminent or whether the US is already in one, our data suggests that consumers are beginning to behave as if they are already here. That could become a self-fulfilling prophecy as consumers tighten their belts.The conversation

This article was republished by The Conversation under a Creative Commons license. Read the original article.

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