Americans are ready to shop holiday sales amid higher prices, debt

Americans are gearing up to do their holiday shopping, retail analysts say, ready to put the grueling election cycle behind them no matter whom they backed at the polls, even as higher costs and consumer debt levels continue to tug at household budgets.

Consumers will be focused on deals, selective on splurges, and hitting up discount and off-price retailers, following a “trend we have been seeing for almost two years now,” said Mari Shor, a senior research analyst at Columbia Threadneedle Investments, an asset-management group. “I would describe the consumer as ‘stable’ but still choiceful in their spending.”

This dynamic is already playing out at some of the nation's largest retailers. Walmart pointed to an influx of six-figure earners at its stores during its third-quarter earnings call Tuesday, signaling that shoppers of all income levels remain price-conscious. The next day, Target lowered its holiday outlook after reporting sluggish quarterly sales as consumers forgo nonessentials and jump to cheaper rivals.

The National Retail Federation projects seasonal spending will climb 2.5% to 3.5%, to somewhere between $979.5 billion and $989 billion. That’s a slower rate of growth than last year — when sales jumped 3.8% — but in line with pre-pandemic levels. And despite elevated inflation, which was a central concern for voters, “consumers continue to show resilience, and they show strength in their spending,” said the federation’s chief executive, Matthew Shay.

A key distinction of this holiday season is the recently concluded presidential race, what Shor calls “near-term noise.” A national election can create decision paralysis, which affects spending patterns. Consumers often hold off on discretionary and big-ticket purchases in the lead-up to Election Day, said Patti Williams, an associate marketing professor and vice dean at the Wharton School at the University of Pennsylvania.

“Uncertainty is a big driver of consumer emotions,” she said. “Now, that uncertainty is largely resolved. We know who’s coming into office.”

And election outcomes aren’t particularly relevant, said Marshal Cohen, chief retail adviser for Circana.

“The psyche of the consumer is: If my candidate won, I feel great, I can go out and spend, and the world’s not coming to an end,” he said. “If you backed a candidate who lost, you’re kind of depressed, and you go out for some retail therapy because the world is going to come to an end.”

Grace McGinnis, 25, said she was motivated to do some holiday shopping the morning after the Nov. 5 election. In need of a distraction, the Detroit-area critical-care nurse said she hit up HomeGoods, Marshalls, and Hobby Lobby. She dropped about $200 on ornaments for a mini tree for her bedroom, figurines for her TV console, throw pillows for her couch, and Detroit Lions apparel.

“The holidays give me that warm, happy feeling going into the new year, so this allowed me to focus on positive things instead of worrying what this new presidency is going to bring,” she said.

Though some consumers might be “spending their feelings” in the near term, Katie Thomas of Kearney Consumer Institute does not expect holiday sales to really ramp up until Thanksgiving week. Black Friday, the day after the holiday, remains the traditional kickoff to the holiday shopping season, when we see “all of these ‘30% off the whole website,’ traditional Black Friday-type deals,” Thomas said. “We’re going to see people go hard.”

Consumers are eager for discounts in the face of higher grocery costs — which have climbed more than 22% in four years — elevated interest rates, and mounting consumer debt, according to Mickey Chadha, a Moody’s retail analyst and vice president. They are going to be choosy about spending.

“Prices are still a lot more expensive than what they were pre-pandemic,” he said. “So consumers are still being very purposeful of what they’re buying, and they’re being cautious.”

Some are holding off on big-ticket purchases until they can score a deal or have saved up enough to afford it, he added. Adobe Analytics projects the best discounts, particularly for TVs, apparel, sporting goods, toys, appliances and computers, will come the week leading up to Black Friday and through Cyber Monday.

Rick Gomez, Target’s chief commercial officer, cited this as a factor behind the company’s subdued third-quarter sales growth. Revenue dipped in the lead-up to Target Circle Week in October, which kicks off the retailer’s holiday shopping push, and fell after.

Americans are also trading down: Walmart, seen as a bellwether for U.S. consumers, reported that higher-income shoppers drove its growth across categories last quarter. It also raised its full-year guidance in anticipation of capturing more turkey, toy, and gift card sales over the holidays. Meanwhile, Target warned that their customers aren’t buying as fervently in its discretionary aisles.

“When it comes to the holiday season … Americans prioritize and save all year long,” according to the National Retail Federation’s Shay. “These are important emotional connections, and that always creates an extra bit of demand because people have prepared for this season and are looking forward to it.”

The National Retail Federation projects shoppers will, on average, spend $641 on gifts and $261 on seasonal items.

At the same time, many Americans are relying on their credit cards more than ever, often using them to afford groceries. Balances climbed 8.1% in the third quarter, a $24 billion increase, to a record $1.17 trillion, according to a November report from the Federal Reserve Bank of New York’s Center for Microeconomic Data.

Delinquency rates, though improved, also remain elevated. It was 8.8% in the third quarter, compared with 9.1% in the preceding three months.