Grinding inflation clouds Black Friday shopping bonanza in the US

Experts are expecting deep discounts on Black Friday products, but consumers may not feel confident enough to spend. PHOTO: NYTIMES

NEW YORK - The Black Friday kick-off of the holiday shopping season is expected to bring especially deep discounts, but one challenge will be finding consumers confident enough to spend.

Grinding inflation in the world’s biggest economy in recent months has cast uncertainty over 2022’s festive season, which starts the day after Thursday’s Thanksgiving holiday.

In 2021, retailers faced product shortfalls in the wake of shipping backlogs and Covid-19-related factory closures. To avert a repeat, the industry front-loaded its holiday imports in 2022, leaving it vulnerable to oversupply at a time when consumers are cutting back.

“Supply shortages was yesterday’s problem,” said Mr Neil Saunders, managing director for GlobalData Retail, a consultancy. “Today’s problem is having too much stuff.”

He said retailers have made progress in recent months in reducing excess inventories but that oversupply created banner conditions for bargain hunters in many categories, including electronics, home improvement and apparel.

Ms Juameelah Henderson always checks for sales but more so now, she said, while exiting an Old Navy store in New York with four bags of items. The clothing chain’s prices were pretty good, she said. “If it is not on sale, I really don’t need it.”

Higher costs for petrol and household staples such as meat and cereal are an economy-wide issue, but they do not burden everyone equally.

“The lower incomes are definitely hit worst by the higher inflation,” said Ms Claire Li, a senior analyst at Moody’s. “People have to spend on the essential items.”

Diminishing savings

Leading forecasts from Deloitte and the National Retail Federation project a single-digit percentage increase, but it likely would not exceed the inflation rate.

The consumer price index has been up about 8 per cent on an annual basis, which means that a similar size increase in holiday sales would equate with lower volumes.

US shoppers have remained resilient throughout the myriad stages of the Covid-19 pandemic, often spending more than expected, even when consumer sentiment surveys suggest they are in a gloomy mood.

Part of the reason has been the unusually robust state of savings, with many households banking government pandemic aid payments at a time of reduced consumption due to Covid-19 restrictions.

But that cushion is starting to whittle away. After hitting US$2.5 trillion (S$3.4 trillion) in excess savings in mid-2021, the benchmark fell to US$1.7 trillion in the second quarter, according to Moody’s.

Consumers with incomes below US$35,000 were affected the most, with their excess savings falling nearly 39 per cent between the fourth quarter of 2021 and mid-2022, according to Moody’s.

Accompanying this drop has been a rise in credit card debt visible in Federal Reserve data and anecdotally described by chains that also report more purchases made with food stamps.

“We are seeing continued pressure,” said Mr Michael Witynski, chief executive of Dollar Tree, a discount retailer that has seen shifts in shoppers, “where they are very consumable and needs-based focused to try and make that budget work and stretch it over the month”.

Mixed picture

Earnings reports from retailers in recent days have painted a mixed picture on consumer health.

Target stood on the downcast side of the ledger, pointing to a sharp decline in shopping activity in late October, potentially portending a weak holiday season. The big-box chain expects a “very promotional” holiday season, said chief executive Brian Cornell.

“They are shopping very carefully on a budget, and I think they are looking at discretionary categories and saying, ‘All right, if I am going to buy, I am looking for a great deal and a great value,’” said Mr Cornell.

But Lowe’s, another big US chain specialising in home improvement, offered a different view, describing the same late October period as strong and seeing no evidence of consumer deterioration.

Consumers like Ms Charmaine Taylor is not sure how much she will be able to spend on family this coming festive season.

“I am trying to give them some little gifts,” said Ms Taylor, who works in childcare. “I don’t know if I’ll be able to. Inflation is hitting pretty hard.” AFP

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