How Inflation Is Impacting Retail This Holiday Season

With the crucial holiday shopping season in full swing, a recent study has revealed that senior retail leaders are more pessimistic about consumers’ confidence to spend in the face of rising inflation than consumers themselves indicate. The report, conducted by First Insight in partnership with WWD, reveals that 77% of retail executives believe consumers are moderately to extremely concerned about recession, while only 57% of consumers expressed the same concern. The retail executives also think that consumers are cutting back more significantly than consumers say they are across multiple categories, potentially creating a more promotionally-driven —and therefore less profitable—holiday season than may be warranted.

Retail executives largely believe that rising prices have changed consumers’ shopping habits to focus more on promotions, sales, and discounts. However, that presumption is not supported by the data. For instance, 58% of retail executives think that consumers are shopping more for deals, but this is true for only 40% of consumers. Forty-three percent of retailers think consumers are buying less overall, yet only 29% of consumers admit that this is the case. Forty percent of retail executives think consumers are using more coupons, compared to only 24% of consumers. The one place both retailers and consumers agree is that inflation has forced consumers to stay within a budget.

“Our data clearly indicate that Executive Decision Makers are not in sync with the consumers they serve, most likely due to a lack of information,” said First Insight CEO Greg Petro. “The Retail Executives’ perspectives demonstrate a risk-averse approach leading to a suboptimal outcome. In this case, I hope they are not getting their ‘head over their skis’ in anticipating a situation which may never transpire.” 

Fifty-two percent of retailers believe that consumers are reducing their spend on apparel, footwear, and accessories because of higher prices when, in fact, only 40% of consumers indicate that they are doing so. Furthermore, 40% of retail executives believe that consumers are cutting back on home décor and furniture items, when only 22% of consumers are spending less on their homes.

Within the apparel, footwear, and accessories categories, retail leaders are even more disconnected from the consumer. Sixty-six percent of retailers think that consumers will cut back on jewelry, with only 32% of consumers in agreement. Fifty-seven percent of executives believe spending on handbags will be reduced, aligned with just 29% of consumers. Evening wear is similarly disconnected. Forty-five percent of retail executives assume consumers will spend less for formal or more dressy apparel, whereas only 20% of consumers agree.

“The U.S. apparel, footwear, and accessories categories go into the holiday season facing the macro disruptions being seen across the economy,” said James Fallon, Editorial Director for Fairchild Fashion Media, which includes WWD, Footwear News, Beauty Inc., and Fairchild Live Media. “Although the challenges presented by supply chain issues, inflation, and workforce shortages are significant, pricing strategy was cited by 40% of retail leaders as the one variable within their control. Given that, a well-developed pricing strategy will make all the difference in retailers’ end-of-year performance.”

The report also finds:

  • Consumers’ top three inflation pain points are grocery prices, gasoline prices, and the high cost of dining out. Retail executives believe the three categories most vexing to consumers are high prices at the pump, grocery prices, and rent or mortgage payments.
  • Seventy-five percent of retail executives believe the country is currently experiencing a recession, compared to 66% of consumers.
  • While just 15% of retail leaders think consumers are saving less, 29% of consumers say they are saving less because of higher prices. Yet 37% of retail leaders believe consumers are using their savings to deal with higher prices, while only 17% of consumers concur.
  • Retail executives and consumers both agree that rising price of food is the top recessionary concern. Number two for consumers is food shortages, yet retail executives believe that housing costs are the second highest concern for consumers.
  • Among retail leaders, the top three priorities for 2023 are growth strategies, customer acquisition and retention, and store operations. Although consumers have been returning to in-person shopping, 49% of retail executives will spend more of their budget on e-commerce technology investments and less on in-store enhancements.
  • Sixty percent of retail executives believe Voice of Customer and assortment/pricing predictive analytics software is important or very important to their business.
  • Increasing prices, reducing inventory, and moving excess inventory are the top three ways retailers say they are combatting inflation and increased costs.

Download the report to see all the findings here.