The boom days are officially over.
In a kind of reversion to the retail mean, holiday sales came in weaker than expected, defying the November and December sales forecasts of retail experts and economists alike.
Even though the writing was on the wall, with retailers reporting sluggish turnover and the fact that sales gains have simply “normalized” back to the historical run rate, the comedown is a painful one for an industry still racing to keep up with a rapidly evolving consumer.
It’s also a shopping downshift with significant implications for this year as inflation continues to cut into spending power and a possible recession looms.
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The National Retail Federation said holiday sales grew by 5.3 percent to $936.3 billion, excluding automobile dealers, gasoline stations and restaurants.
While that left the industry below the NRF’s forecast for a 6 to 8 percent gain versus 2021, holiday sales growth tracked ahead of the 10-year average for holiday gains of 4.9 percent.
Sales for the year gained 7 percent to $4.9 trillion, inline with the NRF’s forecast for 6 to 8 percent growth.
“We knew it could be touch-and-go for final holiday sales given early shopping in October that likely pulled some sales forward plus price pressures and cold, stormy weather,” said Jack Kleinhenz, the NRF’s chief economist. “The pace of spending was choppy, and consumers may have pulled back more than we had hoped, but these numbers show that they navigated a challenging, inflation-driven environment reasonably well. The bottom line is that consumers are still engaged and shopping despite everything happening around them.”
According to the Census Bureau’s official tally, total December retail and food service sales rose 6 percent from a year earlier.
Seasonally adjusted sales, which smooth out differences in the calendar month to month, fell 1.1 percent from November, a weaker showing than the 0.8 percent decline economists projected.
Sales of apparel and accessories at brick-and-mortar specialty stores saw a 2.9 percent gain from December 2021, but were off 0.3 percent from November. Department store sales fell 0.6 percent from a year earlier and were down a sharper 6.6 percent from November.
While e-commerce has fallen from the highs set during the pandemic — when shoppers were huddled at home and spending away — the sector is still showing year-over-year growth. The “nonstore retailers” category saw December sales rise 13.7 percent from a year earlier, but a decline of 1.1 percent compared with November.
Craig Johnson, president of retail consultancy Customer Growth Partners, said retail sales growth was settling into a “perhaps healthier mid-single-digit range” after launching into the stratosphere for more than year.
Higher prices in food and energy cut consumers’ discretionary spending power by an estimated $20 billion during the two-month holiday season, said Johnson, adding that it has been lower-income households that have been hit the hardest by inflation.
The economic change — telegraphed by checkout lines, business headlines, central bankers and Wall Street traders for months — has also prompted the industry to adjust to the end of the retail gold rush.
“We’re seeing a healthy normalization in retail spending, as consumers rebalance spending on services versus goods,” Johnson said. “At the same time, retailers have largely — but not fully — rebalanced their operations to reflect the new environment, including trimming bloated inventories, improving supply chain flexibility and optimizing digital and in-store demand.”
Now the question is what comes next — a soft economic landing or something closer to free fall — and if retailers really are prepared.
Neil Saunders, managing director of GlobalData, said Americans “dug deep to celebrate the holidays, forking out some $37.7 billion more than they did last year.”
“The concern in the December numbers comes not from the headline figure, but the fact that a declining growth rate is now a well-established trend — indeed, December growth was the slowest in 22 months,” Saunders said. “If this pattern is emerging over the holidays — a time when people tend to throw caution to the wind as they spend to enjoy themselves — it does not bode well for the sober months of January and February, which are traditionally more subdued and constrained as consumers assess their finances and pay down holiday debt.
“Nor does it make the prospects for 2023 look particularly optimistic,” he said. “At this stage, it is quite clear that the year ahead will be much tougher than the one that has just passed.”