Expect a good, but probably not a great, holiday shopping season

If you’re a retail business owner who relies on Christmas sales to turn a profit, you’re probably feeling optimistic right now.

Four major forecasts regarding the 2023 holiday shopping season have been released, and three of them predict an increase in sales compared with last year, despite a few clouds on the economic horizon.

Deloitte, one of the world’s largest accounting firms, and Bain & Co., a global management consulting firm, are both forecasting solid – but not spectacular – holiday sales growth this year, with spending slowed a little by inflation and fears of a recession.

Deloitte also predicts that holiday retail sales will grow from four to five percent from the start of November through the end of January year-over-year, with sales reaching $1.5 trillion during those four months.

E-commerce sales will grow 10 to 13 percent year-over-year, with e-commerce sales expected to total $278 to $284 billion. Last year, e-commerce sales during the Christmas shopping season increased eight percent year-over-year.

Deloitte’s forecast takes into account the disappearance of savings from COVID-19 relief programs, an ongoing trend that is expected to impact holiday sales this year.

Ninety-five percent of U.S. consumers say they expect to buy at least a few gifts this year, a pre-pandemic participation level and slightly higher than last year, when 92 percent of all consumers purchased gifts.

“We expect healthy employment and income growth to keep the volume of sales growing for the 2023 holiday season,” said Daniel Bachman, Deloitte’s U.S. economic forecaster, in a statement. “Inflation, which accounted for much of the increase in the value of retail sales last year, should moderate. This means the total value of retail sales will grow more slowly than last year.”

Bain is not quite as optimistic as Deloitte. It expects a three percent increase in sales compared with Christmas 2022, which would be the smallest year-over-year increase since 2018 when holiday spending nationwide reached $915 billion.

Ninety percent of that growth will come from e-commerce and mail order, according to Bain.

The International Council of Shopping Centers expects retail sales to increase 3.8 percent from last year, with total sales of $1.6 trillion. Ninety percent of U.S. consumers – about 235 million shoppers – will buy Christmas gifts this year, the New York-city-based trade association predicted.

“This year’s forecast shows the industry is balancing itself after rapid growth over the last few years, setting retailers up for another successful holiday season,” said Tom McGee, the council’s president and chief executive officer, in the statement.

Holiday sales have increased an average of 4.9  percent during the last 10 years, including an eight percent uptick in 2022, according to the National Retail Federation in Washington, D.C.

As for this year, the federation says U.S shoppers will spend an average of $875 this year during the winter holidays on “seasonal items,” including gifs, decorations, and food. That’s $42 more than consumers said they would spend leading up to last year’s holiday season, and it lines up with the typical holiday budget of the past five years, according to the association.

The federation did not issue a year-over-year sales forecast.

Probably the strongest positive for retailers heading into November and December is the job market.

In September, the national unemployment rate was 3.8 percent and the economy added 336,000 jobs, according to the U.S. Bureau of Labor Statistics.

The jobs number – nearly double the amount predicted by Dow Jones – was “incredible,” said Jay Prag, an economics professor at the Drucker School of Management at Claremont Graduate University.

“Employment is very strong, and that’s good,” Prag said. “Interest rates are high, but that doesn’t seem to have slowed down the economy very much. Overall, the economy feels very strong heading into Christmas.”

The Federal Reserve will likely raise interest rates next year, maybe as early as the first quarter, which is why the economy will probably experience a “mild slowdown” next year, according to Prag.

“In a way, I think the holiday season in 2023 will be a last hurrah for the economy,” Prag said. “All of the pandemic relief funds, which were essentially free money, have pretty much worked their way through the economy so some people won’t have as much to spend.”

Inflation must still be taken into account, even though it has slowed during the past few months.

Seventy-two percent of those surveyed by Deloitte said they expect to pay higher prices this year. More than 80 percent expect prices in clothing and electronics, two of the most popular gift categories, to be higher this year than they were last year.

“Wages aren’t keeping up with inflation, so it’s still a factor,” Prag said. “With inflation the way it is, I don’t think you will see a lot of discounts. The discounts this year might be stores announcing they’re not raising prices.”

Big-ticket items, like automobiles and furniture, will be hurt the most, “but Walmart won’t sell as many t-shirts, either,” Prag said.

A government shutdown could change a lot of people’s holiday shopping plans, which is why retailers should be concerned about the turmoil in Washington, D.C.

“Obviously, a shutdown wouldn’t help,” Prag said. “It’s about the last thing the economy needs right now. If it happens it will happen in mid-November, and that will cause people to pause and think about how much they want to spend.”

Holiday shopping appears to have already started at Inland Center Mall in San Bernardino and the Mall of Victor Valley in Victorville, a good sign for the rest of the year, said Terri Relf, senior marketing manager at both facilities.

“We’re seeing a lot of people leaving both malls carrying large shopping bags, and the store owners I’ve talked to are optimistic,” Relf said. “Everything is moving forward. We expect it to be a good year.”