Black Friday deals, buyer pullbacks pressure retailers

The recent wave of relief across the retail industry is giving way to a premonition ahead of Black Friday and the holiday shopping season.

Shoppers helped companies like Macy’s Inc. avoid the worst-case scenario in the third quarter by charging credit cards to absorb higher prices on groceries and household items while taking advantage of deep discounts on overstocked TVs and furniture. And even though results from retailers like Abercrombie & Fitch Co. and BestBuy Co. beat forecasts, sales were still down — the decline just wasn’t as bad as expected.

That’s in large part because retailers have offered earlier-than-normal promotions this year to clear excess inventory.

However, executives urged caution and repeatedly referred to economic uncertainties. And the cost of unloading accumulated inventory is expected to weigh on profits while still grappling with inflation and staffing issues.

For buyers, this could result in big discounts. But these bargains could be sitting on top of spring’s leftover sweatpants as retailers continue to struggle with overstocking everything they bought earlier in the year, including clothes and toys.

All in all, the US economy faces the bleakest holiday outlook in recent memory, with sales struggling to top the record levels of recent years. Apparel companies are consistently conservative on expectations for the fourth quarter, citing an uncertain environment and slower sales activity in late October and early November.

“Management teams will be looking at numbers daily in the fourth quarter,” said David Shiffman, co-head of consumer retail at Solomon Partners, of retailers’ concerns about sales performance during the holiday season.

Total spending this holiday season is up 2.5% year over year, according to data from Adobe Inc., compared to 8.6% last year and a whopping 32% in 2020. These numbers are not adjusted for inflation, meaning sales could decrease in volume.

The challenges are particularly acute for brands that target low- and middle-income consumers, who have become more cautious about spending on discretionary items. At Abercrombie & Fitch, for example, the higher-priced namesake brand posted net sales growth in the third quarter, while the lower-cost Hollister brand saw a decline.

“We’re seeing a real disconnect between our brands and the consumers who buy our brands,” said Fran Horowitz, Abercrombie’s chief executive, in an interview. “In the middle of the second quarter, the Hollister customer really stepped back. This year they have definitely been pressured by inflation controlling their spending.”

On the other hand, higher-income shoppers are still spending. This trend was evident in the results of Macy’s-owned Bloomingdale’s and Gap Inc.-owned Banana Republic, which outperformed the parent companies’ lower-cost brands.

“Higher-income households saved more than others and are far less sensitive to rising prices,” analysts at Moody’s Investors Service said in a report, noting that the top 40% of the income distribution has 4.5 times more savings than before Pandemic . “Because of their wealth buffer, they’ve continued to spend money, particularly on services like leisure and travel.”

Consumers are still planning to spend: More than three-quarters of shoppers expect to shop as much or more during the holiday season than they will in 2021, and 85% said they will do at least some of their Christmas shopping on Black Friday, according to survey data by, a location analytics company that tracks pedestrian traffic.

But some consumers are relying more on buy-now-pay-later loans and options than they did a year ago, likely reflecting a decline in the savings rate. Macy’s said last week customers were building larger balances on credit cards.

A US recession – which a growing number of economists have warned could be imminent as the Federal Reserve continues to raise interest rates to curb inflation – could have a greater impact on spending across the income spectrum.

“With savings rates now well below pre-pandemic levels and volatile stock markets eroding household wealth, the risk of a sharper slowdown in personal spending will increase unless inflation falls below current levels,” said Claire Li, vice president for credit strategy at Moody’s Investors Service.

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