The 2023 holiday shopping season promises to be a little different than in years past.
Not only will temperatures cool in December, but likely so will consumer spending. That’s largely due to a sluggish economy, inflation, higher interest rates on credit cards and the fact that people have less savings than in the past. That also means most consumers will have less money to spend on presents this year.
But give retailers credit for pulling out all the stops. They have lengthened the holiday season to ensnare more consumers, replenished their supply chains, placed more emphasis on promoting online deals and employed artificial intelligence for operational efficiencies.
But one Arizona State University professor noted that despite these best efforts, it might not be enough.
“I hate to be the Grinch this Christmas, but if you dig deeper in the numbers, there are warning signs,” said Hitendra Chaturvedi, a professor of practice in Arizona State University’s W. P. Carey School of Business. “Adjusted for inflation, growth in retail sales will be a sluggish 1% over last year, according to Bain and Company, a sales growth figure that will be lowest since the financial crisis.”
An expert in supply chain management, global logistics, entrepreneurship and sustainability, Chaturvedi said the current economy is a teaching moment by offering retailers a map to navigate the “most wonderful time of the year.”
ASU News spoke with Chaturvedi about this holiday shopping season, trends in spending and how the season is guiding retailers to conduct business beyond the holidays.
Question: As we are in the thick of the holiday shopping season, what are some key trends you’re seeing?
Answer: One key trend is that the holiday shopping season starts earlier every year. The holiday season is not limited to post-Thanksgiving shopping and, like our waistlines, expanding to cover more months! Retailers are starting holiday sales as early as July to get a share of the consumer wallet as soon as possible. Unlike bricks-and-mortar stores that had to plan months for a sale, it is relatively easy for an online store to run a holiday sales event, so we will see many more virtual “Black Fridays,” “Cyber Mondays” and “Prime Days” in the future.
According to the National Retail Federation, less than 10% of consumers will wait until December to start their holiday shopping. Analysts predict that retail sales this holiday season are expected to grow between 3.5% and 4.5%The predicted growth of 3.5–4% is without taking inflation into account. Adjusted for inflation, the growth is just 1%. over last year. With low employment and the security of a steady paycheck, consumers are spending, but cautiously.
Interestingly, AI has rapidly found its way into our holiday shopping experience. Under the hood, retailers are already using predictive and generative AI for operational efficiencies and personalized shopping experiences, which will impact close to $200 billion in sales, according to Salesforce, but, more interestingly, it reports that 17% of the consumers plan to use generative AI for holiday purchase “inspiration.”
Q: Does that mean we will not see a recession?
A: As they say, the devil is in the details. We are scraping the bottom of our savings buckets as our savings rate today is 3.4%, well below the average of 8.9%. Nearly half of U.S. adults have zero or less savings than a year ago. More than a third have more credit card debt than cash reserves. A combination of high credit card debt, which has now topped a trillion dollars two quarters in a row, a rising credit card delinquency rate (still low by historical standards), high interest rates and persistently high inflation is giving consumers pause, with clear telltale signs to retailers. For example, this holiday season, the American consumer is spending less on high-ticket items, as reported by weak sales for Lowe's and Home Depot. Retailers have started to get worried about their sales and profits this holiday season.
Q: Is this why companies are trying to change their return policies and make it more difficult to return products?
A: Amazon started lenient return policies, so we would be more comfortable buying online, and other retailers were forced to follow. Now that the genie is out of the bottle, customers expect a lenient return policy. Research has shown that over 85% of the customers who have a bad return experience will not buy from that retailer again.
Returns have become a big cost for retailers, and according to a survey by Salesforce, 88% of the retailers say they will be making return policies stricter this holiday season — but I believe that this might not be the most prudent move given the timing. As markets are slowing down and consumers are wary of economic conditions, bringing in a less-friendly return policy might spook the customer. Historically, return data has shown that retailers with less than a 30-day return window may risk reducing their sales by 7–8% over the holiday season. The question is, are retailers willing to take that risk?
Q: What happened to the supply chain issues?
A: We Americans have short memories. For many of us, the supply chain issues of the past year are distant memories and have now been replaced by the hot topic of inflation and lack of workers. Today, we have sufficient products on the shelves as the supply chains are on the mend. Some blame persistent high inflation on corporate greed, but many agree that with this inflation, we are in uncharted territory. To tackle labor challenges, including strikes, many retailers are hanging their hats on extensive automation and AI. Do not be surprised if you see a major wave of investment in warehousing technology enabled by AI across the supply chain ecosystem post-holiday.
Top photo by iStock/Getty Images
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