Why retailers are making extra efforts to woo holiday shoppers

Amazon hosted an extra Prime Day in October and lavished deals on its website. Best Buy introduced Black Friday-level sales last month. And on Friday, Kohl’s enlisted the first 200 people to walk into each of its stores sweepstakes, with prizes like Sephora gift certificates and a family trip to a Legoland resort.

With the arrival of the all-important holiday shopping season, retailers aren’t just competing with each other to attract customers. They also compete against the clock.

For now, Americans are spending, fueled by pandemic-era savings and a red-hot job market. But at the same time, prices are rising at their fastest rate in decades and the US Federal Reserve is trying to contain them by raising interest rates. This attempt to dampen demand by making borrowing more expensive is in turn making consumers bearish about the economy. And a recession is quite possible.

Retailers, some sitting on overstocked inventory, want to sell as much as possible while consumers still whip out their wallets. So they bombard customers with discounts, hoping to entice them to buy before an economic slowdown leads to another change in behavior.

Whether retailers thrive will have profound implications. Billions of dollars are at stake, and companies will be watching the results closely as they make hiring and investment decisions for the new year.

“We’re going to be spending a lot of time right now focusing on executing on our plan, getting through the holiday season and then assessing consumers and the broader retail landscape as we move into 2023,” Target CEO Brian Cornell said at one Call with analysts this month.

More broadly, retail sales during the holiday shopping season could provide some insight into how the economy will develop over the coming weeks and months.

“For the overall economy, I think it’s going to be very important to look at what the consumer is doing because that’s really going to be your key indicator,” said Lydia Boussour, economist at EY-Parthenon. “That’s the most important engine of growth.”

Forecasts generally suggest that consumer spending, which accounts for about 70 percent of total economic growth, will remain strong in the fourth quarter, thanks in large part to household savings. Overall, as of mid-year, Americans were still sitting on about $1.7 trillion in additional savings accumulated during the pandemic, based on Fed estimates, thanks in part to government aid.

But in September, the most recent month for which calculations were available, Americans saved just 3.1 percent of their after-tax income, less than half the pre-pandemic share. And poorer Americans are seeing their savings dwindle even faster than wealthier ones.

Meanwhile, credit card balances in the third quarter 15 percent swollen compared to the previous year, according to the Federal Reserve Bank of New York. That was the largest increase in more than two decades as consumers become increasingly dependent on credit despite rising borrowing costs.

And a University of Michigan survey This month saw a sharp drop in “consumer sentiment” – a measure of how people feel about the economy and their financial situation. Even as consumers continue to shop, Ms Boussour said, “they are feeling depressed about the overall economic situation and they will be less and less willing to spend.”

Retail sales rose 1.3 percent in October, more-than-expected as shoppers snagged Christmas deals earlier than usual. Some large retailers, including Walmart and Home Depot, reported strong third-quarter profits, supported by sales of less discretionary goods such as groceries or items related to home renovations and do-it-yourself projects. “Households are still spending because they can,” said Aneta Markowska, chief financial economist at investment bank Jefferies. “I still think there’s a lot of uncertainty going into next year because the Fed has obviously raised rates very aggressively this year and we haven’t really felt the impact yet.”

But several retailers said they saw low demand for their products throughout the month and when shoppers made purchases, they appeared to be motivated by sales. Some companies have lowered their financial outlook or declined to provide forecasts for the next year to avoid being caught flat-footed.

This is not how the end of the year should be. For two holiday seasons, retailers struggled with pandemic disruptions. Now that the virus restrictions and supply chain disarray that defined those periods have largely subsided, retailers had expected a return to normal.

Instead, retailers are trying to escape a likely economic slowdown.

To lure bargain-hungry shoppers and shift unwanted inventory, many companies are promoting “value,” offering sharper discounts and lower prices than last year, even as labor costs remain high. Many started their Christmas Blitzes early in hopes of getting a jump start. Target held Deal Days in October and Old Navy launched a “Sorry, Not Sorry” holiday campaign. “Value is clearly important to everyone,” Corie Barry, Best Buy’s chief executive officer, said on a earnings call last week.

At JC Penney, stores returned to 5am on Black Friday, touting “pre-inflation prices” on items like instant pots, hair straighteners and coats.

Macy’s CEO Jeff Gennette said a feature on his site that allows users to browse gifts priced between $15 and $100 is particularly enticing to shoppers.

“If you have an item that competes with the competitor and you have a higher price, you need to make those adjustments,” he said.

Retailers try to remove all obstacles between a buyer and a potential purchase. Jill Timm, Kohl’s chief financial officer, said the chain provides shoppers with more personalized offers and clearly spells out the discount amounts on certain items to prevent shoppers from getting confused “because they have to do the math.”

Kohl’s “really makes sure that the offerings that we make are meaningful to the customer to encourage their behavior,” Ms. Timm said.

Signaling value is part of the overall strategy of Primark, an international apparel retailer looking to expand its presence in the United States.

At a recently opened store in a Garden City, NY mall, Primark executives pointed out large signs selling $11 hoodies, $4 biker shorts and $20 for a baby blue bag stitched with Disney characters. promoted the Lilo and Stitch movie — and noticed that a 90-cent candle costs less than Walmart with no holiday discount.

“There has to be a very clear moment when you walk into the store that the entire store has amazing value,” said Kevin Tulip, US President of Primark.

Shoppers seemed price conscious on Black Friday and throughout the weekend.

According to data released by Adobe Analytics on Friday, retailers have slashed online prices for goods such as toys, electronics and computers. According to Adobe data, discounts on sporting goods and TVs were much higher this year than last year, and clothing prices were slightly lower this year. According to Salesforce, the average discount for Black Friday deals in the United States was 30 percent. In 2019, according to Salesforce, the average discount rate for Black Friday was 33 percent.

According to Mastercard SpendingPulse data released on Saturday, Friday in-store sales were up 12 percent year-on-year and e-commerce sales were up 14 percent compared to 2021. These sales included spending not only in retail stores but also in restaurants.

Still, not everyone was satisfied. On social media, people complained that the Black Friday deals weren’t as extensive as they expected.

In San Francisco, Riz Gordon, 24, woke up at 6 a.m. on Friday to go shopping with her parents and younger sister. Going to the shops that day is “a long family tradition,” she said, and they’ve already picked out stocking fillers and smaller gifts. But inflation was on their minds.

“Prices are very different than they were 10 years ago,” Ms. Gordon said.

On Sunday, DJ Baggerly, 69, stopped by a Target in Springfield, Illinois for one last Christmas present: a white knit blanket. She’d spent most of the weekend shopping online and going through her grandchildren’s wish lists.

Ms Baggerly lives on a steady income and the higher prices for petrol and groceries, she said, were “ridiculous”. When asked if she plans to cut back on her spending in the coming weeks, she said: “Oh yes. I’m done.”

Ben Casselman and Kalley Huang contributed reporting.