What the Fed’s rate hike will mean for holiday shopping
The latest interest rate hike could impact holiday shopping for both retailers and consumers. Theoretically, higher interest rates will slow consumer spending, reducing demand for goods and services. Lower demand means higher supply and should lead to lower prices. This can have a direct impact on retailers by motivating them to cut holiday products sooner and take bigger markdowns to ensure inventory is sold. Consumers will be looking for holiday shopping early, they’ll be looking for discounted prices on products, and they’ll want to budget holiday spending over a longer period of time.
While the National Retail Federation (NRF) has not formally forecast holiday sales, Deloitte has forecast holiday sales to increase 4% to 6% from last year (November to January). Neither the NRF nor Deloitte include October in the holiday sales forecast, but in recent years October has become the main month of the holiday sales season. Consumers’ early holiday shopping will be driven by the Fed’s interest rate hike, early retail sales and the possibility of a recession later in the year. The expected increase in sales compared to last year, even at 6%, does not cover the increase in the consumer price index (more than 8.3% until August). Consumers will buy fewer gifts but spend more money.
Factors Influencing Holiday Shopping
Higher interest rates will have a deeper impact on consumers who rely on credit cards to make purchases (and don’t pay them off at the end of each month) or who have secured a variable mortgage rate. Chirag Modi, Vice President of Industry Strategy at Blue Yonder, said, “Holiday discounts will start earlier due to rising interest rates; historically, this has happened when the Fed raised rates. Modi explained how the discounts will vary by industry and category, depending on the retailer’s inventory level. Modi said: “Retailers with stock will have more incentive to discount than those with less stock.” He also acknowledged that households will feel the pressure, especially consumers who have variable interest mortgage rates.
Rising interest rates can lead to a recession resulting in the loss of jobs and income for workers. With the uncertainty of the coming months, consumers will be more selective in their holiday shopping and start their holiday shopping early, as they did last year.
The other important factor that will affect the disposable income of consumers in cold regions is the price of crude oil. Home heating costs will be significantly higher than last year. Although fuel prices have fallen in recent months, year-over-year fuel sales are up 39% and heating oil is expected to be 17% higher than last year.
Titan retailers are moving fast to attract shoppers
Major retailers will be offering great sales incentives starting in October. Target
Walmart, America’s largest retailer, has announced it will offer thousands more Rollbacks this holiday shopping season, offering bigger savings on the hottest categories including toys, home, electronics and beauty. The company has also extended its return policy; eligible purchases made on or after October 1 can be returned until January 31, 2023, and returns can be made curbside.
It is rumored that Amazon
Amazon can use its Thursday Night Football streaming event to highlight Prime benefits, including special sale events. The first Thursday Night Football (TNF) stream averaged 13 million viewers according to Nielsen National TV Ratings, 47% more than the NFL Network game in the same week the year before. Amazon Prime Video will broadcast NFL Thursday Night games through 2033. Access to millions of viewers can generate additional revenue in October with an added Prime sale event and its official TNF program for Prime members.
Holidays start in October for retailers and consumers
The start of holiday shopping as early as October will spread revenue over three months for retailers. Consumers will be motivated to start shopping early to take advantage of the incentives offered by retailers and to spread their holiday spending over the months of October, November and December. The NRF said American consumers are starting their vacation shopping earlier than in the past, both to stretch their budget and to avoid, or at least alleviate, the stress of vacation shopping.