Holiday Spending Outlook Is Cautiously Optimistic

The holiday season is one of the most anticipated sales periods for businesses every year—and holiday spending surged to record levels over the last three years amid pandemic-era stimulus money. Despite inflationary pressures and high interest rates, spending is expected to grow between 3% and 4% to roughly $966.6 billion. Although this is a slower growth rate than the past three years, it is consistent with the average annual holiday increase of 3.6% from 2010 to 2019, according to the National Retail Federation (NRF).

“Consumers remain in the driver’s seat, and are resilient despite headwinds of inflation, higher gas prices, stringent credit conditions and elevated interest rates,” NRF Chief Economist Jack Kleinhenz said. “We expect spending to continue through the end of the year on a range of items and experiences, but at a slower pace. Solid job and wage growth will be contributing factors this holiday season, and consumers will be looking for deals and discounts to stretch their dollars.”

A survey from ICSC found that eight in 10 shoppers expect to spend about the same as or more than they did last year during the holiday season. “This figure shows a slight uptick compared to the 73% of consumers who said the same in 2022, reflecting continued and consistent spending while navigating economic pressures like inflation and higher interest rates,” the report reads.

Inflation has been driving higher dollar sales for most retailers and wholesalers. Sales expectations for 2023 are not quite as high as they were for 2022, but most retailers expect both dollar sales and unit volumes to increase in center store categories, according to the Supermarket News 2023 Center Store Trends Survey. “But increased consumer spending doesn’t necessarily translate into more items being bought,” said NACM Economist Amy Crews Cutts, Ph.D., CBE. “Due to inflation-adjusted level sales, consumers may be buying on average the same number of items but at a higher price.”

As credit managers in the retail industry gear up for the holiday season, some take the time to reflect on spending trends from the last several years. “During the pandemic, our industry saw a big reduction in sales because everyone was staying home,” said Ian Hittman, chief financial officer at Gerson & Gerson, Inc. (New York, NY). “It wasn’t until last year that we saw a spike in sales. We’ve also seen it come down a little bit from last year, but not to the levels that it was during the pandemic.”

Practicing due diligence will prevent any payment delinquencies during the busy holiday season. “Credit professionals have to be ready for a possible downturn,” said Denise Moller, CCE, ICCE, credit manager at Agri-Fab, Inc. (Sullivan, IL). “I’ll always be looking for any changes in customers’ ordering patterns as they are always in flux. With talk of recession, I think people are going to be more cautious with their spending.”

Craig Lindsay, credit manager at Skechers USA, Inc. (Manhattan Beach, CA) is aware that just because customers have a strong interest in their product and a good payment history, doesn’t mean they’re always creditworthy. “I recognize them when their business is going well but if they’ve placed an order that’s two or three times where I’ve had their account before, then I have to backtrack on extending credit or extending credit terms.”

Retailers are paying closer attention to the factors that influence consumer debt load, including rising interest rates and the resumption of student loan payments. “The cost of borrowing has climbed as credit card delinquencies—the number of people not making payments toward their balance—have ticked up, though the metric remains below the highs of the Great Recession,” reads a CNBC article.