November’s Consumer Price Index (CPI) report released today shows inflation jumping 7.7% in October from a year ago, with notable increases in costs for food and shelter. Core inflation, which excludes food and energy prices, jumped to a 40-year high this fall.
As a result, many consumers are buying earlier this year and hunting for sales. The National Retail Federation (NRF) found in September that 44% of holiday shoppers think it’s better to purchase gifts and other holiday goods earlier than usual before inflation raises prices further.
Small business retailers could be impacted the most.
According to the Small Business & Entrepreneurship Council, American business owners consider inflation and President Joe Biden’s regulatory policies to be two of the biggest roadblocks to their businesses. Retail sales fell flat in September, and consumers are expected to cut back on nonessentials. This could put some small businesses in jeopardy after 59% of small business retailers reported in June that they were at risk of closing this fall due to interest rate hikes, changes in consumer spending and recession fears.
Holiday sales could be slower.
The holiday season is critical for the revenue of many businesses. According to NRF, for the past five years, holiday sales in November and December made up nearly one-fifth of annual sales. Holiday sales are typically more profitable because “the increased volume of purchases comes without significantly increasing retailers’ fixed costs of doing business.” Inflation, however, is predicted to slow these profits down. AlixPartners projects that holiday sales will rise 4% to 7% in 2022 – much lower than last year’s growth of 16%.
The National Retail Federation is optimistic.
The NRF released its holiday outlook last week, which predicted stable holiday retail sales during November and December, with growth projections between 6% and 8% over 2021. “Despite record levels of inflation, rising interest rates and low levels of confidence, consumers have been steadfast in their spending,” said NRF Chief Economist Jack Kleinhenz. NRF President and CEO Matthew Shay elaborated, noting that “many households will supplement spending with savings and credit to provide a cushion [that will] result in a positive holiday season.”
Retail has been resilient.
The industry has already proven its resilience by adapting to the economic uncertainty of the past few years and the considerable challenges caused by the pandemic, such as store closures, changes in consumer preferences, contactless shopping and delivery, shipping delays and higher inventory costs—all on top of progressive antitrust efforts determined to undermine competitive pricing. Businesses have pivoted to respond to consumer demands for convenience, offering multiple types of fulfillment options and utilizing digital tools to reach more shoppers. As such, retail has been one of the most nimble and adaptable industries of the past several years.
Moreover, affordability and diverse shopping options will make the difference for retailers this holiday season. In October, Alix Partners released data showing that 39% of Americans plan to buy at least half of their items on sale this holiday season, and 40% plan to do most of their shopping online. If retailers focus on the right strategies to respond to consumer needs, the impact of inflation could be reduced.
Despite the tough economic data, this holiday season presents a bright opportunity for retailers to innovate, adapt and meet inflation-weary Americans’ growing need for convenience and competitive pricing.