Black Friday weekend is still two weeks away, but the forecasts about this year’s holiday shopping season have been coming in hot and heavy for weeks. Everyone with a spreadsheet and a shopping cart is making predictions about how business will be this year, and most of them are pretty optimistic. Most of them are also wrong.
Well, at least wrong when you look at the actual numbers. Yes, sales will be up in volume, but in real dollars, sales will essentially be flat—and for the home furnishings business, the outlook may be worse. The underlying culprit, often left unspoken, is inflation, and its devastating impact on the retail sector this year.
A little context: Retail sales overall for 2022 have been slow as consumers redirect spending from stuff to activities like travel, vacations, restaurants, entertainment and out-of-home activities. In fact, the only product category to see any legitimate growth this year has been apparel—specifically, casual clothes rather than office wear—and that spike only because spending on clothing (other than sweatpants) was pretty dismal during the pandemic years. This general retail malaise followed a holiday shopping frenzy in 2021 that was among the strongest in decades, with double-digit increases across the board. That 13.5 percent jump contrasted with an average increase of about 5 percent a year over the past decade.
Fast-forward to December 2022: The forecast from the National Retail Federation, representing a cross section of retailing organizations, is pretty typical. Its recently released prediction called for sales to climb between 6 and 8 percent in the November-December period. That would total about $950 billion, give or take a few shopping bags.
Pretty good, right? Wrong.
According to the Bureau of Labor Statistics, inflation for the trailing 12 months through September was 8.2 percent. It has been in that range for most of 2022, peaking at 9.1 percent in June, and there’s no reason it will drop off for the final few months of the year. Suddenly, those 6 to 8 percent forecasts aren’t looking so good, are they? Sure, the top-line numbers for retailers will be up, and big stores like Walmart, Target, Macy’s and others will show big gains in revenue. But very little if any of it is going to trickle down from top-line revenue into actual profits. Increased cost of goods, labor, logistics and power are going to sap all of those sales gains. Don’t be surprised to see not just small profits but in some cases none at all.
It’s why the headlines rarely tell the whole story. This Christmas will look merry from some angles, but when you finish putting away the tinsel and trim, it will likely be much more humbug than humdinger for retailers this season.
Homepage image: ©Roman Milert | Adobe Stock
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Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.
