Understanding Consumer Behavior and Retail Predictions
Lessons from the 2022 Spending Season: The past few years have been tricky for retailers and shoppers. With the pandemic’s onset in 2020, sudden lockdowns worldwide meant consumers could not spend on experiences and therefore spent more on goods. At the same time, retailers were facing broken supply chains, making it difficult to manage inventories ahead of the crucial holiday season. This led to delivery delays, leaving shoppers on edge about whether they would receive orders in time for the holidays. Retailers also faced high costs, which were passed on, in part, to shoppers through price increases. Scarcity and uncertainty, not promotions, were themes of the holiday seasons of 2020 and even 2021.
However, in the world of retail, this season also brings forth questions about consumer spending habits, economic trends, and the factors that will influence shopping decisions. According to the Mastercard SpendingPulse™ forecast, U.S. retail sales, excluding automotive purchases, are expected to grow by 3.7% year-over-year (YOY) during the holiday season, spanning from November 1 to December 24. This projection reflects consumer resilience and an encouraging outlook for retailers. Mastercard SpendingPulse tracks both in-store and online retail sales across various payment methods and does not account for inflation.
With the backdrop of the 2022 holiday season, characterized by inflationary pricing and pent-up demand, this year promises a different landscape. Factors such as excess savings, rising wages, and evolving consumer behaviors have set the stage for a holiday season marked by shifts in spending habits, categories, and channels. In this article, we delve into the insights provided by Mastercard SpendingPulse and explore the key trends shaping the 2023 holiday season.
The Spending Behavior of Holidays Present: Empowered by Economic Resilience
While the shoppers of holidays past tried to find their footing in a rapidly shifting economy, the shoppers of holidays present are taking their power back.
The resilient economy in 2023 – which has been a story of positive surprises – has buoyed the shopper. Jobs continue to be added to the economy at a solid pace, and the unemployment rate is at record lows. Consumers are currently benefiting from strong income growth, allowing them to continue to spend and engage in the economy productively.
With the 6% inflation of holiday 2022 moving further into the past, the landscape looks different in 2023. Inflation has dropped by almost half to below 4% over the past year, setting an expectation for shoppers that it will continue to drop.
What’s in the Shopper’s Basket in Terms of Spending in 2023?
The shopper of holidays present is still spending on experiences, although in a more measured way than we saw during the 2022 holiday season. In the initial burst of spending on experiences, shoppers faced a market with capacity constraints, whether limited hotel rooms or airfare options. With supply constraints easing, shopper demand is being met. But that also means more choices for shoppers as they’re better able to navigate inflationary pressure.
We have also seen targeted spending on experiences – consider the sharp increase in spending on Taylor Swift and Beyoncé concerts and the jump in movie-goers due to several blockbuster releases. Shoppers will deploy their purchasing power when the time is right. And, of course, it is always fun to “gift” experiences, particularly when it is an activity that brings friends and family together. This provides additional support to travel, restaurants, and recreation spending this holiday season.
It won’t just be about experiences this season. With price discounting for goods underway, we expect shoppers to be enticed by those promotions. We think this could be a driver specifically for electronics where we may be entering a new replacement cycle for certain items, especially with technological advancements.
Embracing a Successful 2023 Holiday Season
In summary, the evolving landscape of the 2023 holiday season brings forth a confident and empowered shopper. The lessons learned from the challenges of holidays past have fortified consumers, enabling them to make informed choices and navigate economic trends effectively. As retailers prepare for the holiday rush, they must recognize the preferences of the holiday’s present shopper—demanding discounts, embracing experiences, and seeking value. By doing so, they can avoid a “Bah, Humbug!” holiday and usher in a season of success and prosperity.
As the shopper of holidays yet to come remains a mystery, it is essential for retailers to learn from the wisdom of both the past and the present. By doing so, they can create a holiday shopping experience that resonates with the evolving needs and desires of their customers, ultimately ensuring a joyful and successful 2023 holiday season.