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KATHLEEN DOLER

Will The Grinch Steal Christmas 2022?

We all know Santa's on his way, but will he bring goodies in his sleigh? Holiday shopping predictions for 2022 have been as varied as fruitcake recipes.

In early November, the National Retail Federation (NRF) forecast growth of 6% to 8% in U.S. holiday sales for 2022 to between $942.6 billion and $960.4 billion. In 2021, holiday sales grew 13.5% (a banner year) and totaled $889.3 billion, says NRF.

But other forecasters weren't breaking out the rum and eggnog. Rising prices for gas, food and other basics have been emptying consumer wallets. Plus soaring interest rates on credit cards, mortgages and car loans have eroded holiday shopping budgets.

Looks like bah humbug forecasters were right. Sales fell by a seasonally adjusted 0.6% in November from the previous month, the Commerce Department said Thursday. That's a significant slowdown from October's 1.3% sales increase. Shoppers cut back on purchases of clothing, electronics, sporting goods and more, both in stores and online.

Consumer confidence has been weak for over a year, according to the December IBD/TIPP Economic Optimism Index, a leading national poll of consumer confidence. The index was 42.9 in December, up slightly from November's figure of 40.4. But it's been in negative territory for 16 consecutive months. A reading above 50 signals optimism and below 50 indicates pessimism on IBD/TIPP indexes.

Additionally, 69% of IBD/TIPP survey respondents said they will be reducing holiday-related spending this year. And 73% said they'll reduce holiday-related, long-distance travel. IBD's polling partner TechnoMetrica surveyed 1,351 adults from Dec. 7 through Dec. 9.

And money woes will impact New Year's too. WalletHub said 75% of Americans expect to spend less on New Year's celebrations this year, compared to last year. It also said 1 in 3 people are planning to make a finance-related New Year's resolution for 2023. That's according to a WalletHub survey released Thursday.

Holiday Shopping Growth: Rotund Like Santa Or Thin Like A Candy Cane?

Although the NRF forecasted holiday sales growth, others align more with the IBD/TIPP poll. They show Santa tightening his belt.

Consulting giant PwC said in its holiday outlook report that consumers plan to spend an average of $1,430 on gifts, travel and entertainment this holiday season. That's actually down from the $1,447 they spent last year.

Other consulting giants have weighed in as well. KPMG's survey of retail executives predicts holiday sales growth of just 4.2%, although flat to slightly negative when considering inflation. Meanwhile, Bain & Company forecasts 7.5% growth in U.S. holiday sales.

Bain says in its 2022 Holiday Shopping Outlook that merchants will face holiday growth challenges of tough comparable sales, soaring interest rates, declining disposable income, increasing consumer debt and ongoing supply chain restraints.

Yet on the plus side, Bain says higher employment and wage growth could encourage more holiday spending.

Merchants Need Santa

Holiday shopping can be up to 30% of all annual retail sales. Big retailers, including Walmart, Target, Costco, Macy's and others depend on holiday sales to boost annual revenue and profits.

Big investors in these companies, and online shopping giant Amazon, weigh holiday shopping predictions as a key part of their investing strategy.

Bank of America Securities analyst Robby Ohmes says he expects same store holiday sales for the companies he covers, including Target, Costco and Walmart, will rise just 1.3% this year versus an increase of 6.5% in 2021. "Inflation is the Grinch," said Ohmes.

But he added: "Inflation makes it challenging to forecast sales — everything is more expensive than last year. (Because of higher prices) you could have weaker unit sales but higher dollar sales."

Online Shopping Vs. Retail

Online shopping has gained ground over the last few years. And of course the Covid pandemic boosted shopping from home.

PwC says 57% of the consumers they surveyed intend to shop online this holiday season, while 43% say they'll shop in stores.

"We expect (online sales) to move up (in 2022), but a bit more modestly" than before, said Ohmes.

And Ohmes says retailers have noted a shift to more in-store shopping this year. He also says that Target and Walmart have done well growing their hybrid model — order online but choose in-store pickup.

Who Will Be 2022's Big Holiday Spenders?

The only age group that will spend more this holiday season than last year is Millennials, says PwC. It forecasts they'll increase their holiday spending on gifts, entertainment and travel by 11%.

What are holiday shoppers intending to buy? The top two items are apparel and gift cards, says Matt Kramer, KPMG's national sector leader for consumer and retail.

Why gift cards? Prices don't rise on gift cards, whereas goods' prices are still climbing.

And apparel? "Consumers are going with staple purchases," said Kramer. "And people will be buying gifts that fit into their budgets this holiday season."

Forecasts from retailers have been a seesaw. In October, some analysts thought luxury brands, often purchased by individuals in higher income brackets, may fare well this Christmas. Tapestry was Ohmes' top retail pick for the holiday shopping season. It's the parent company of three major luxury brands: Coach, Kate Spade and Stuart Weitzman.

However, in November Tapestry and Ralph Lauren announced North American demand for high-end fashion was slowing. Tapestry also announced its fiscal 2023 first quarter results and cut its fiscal 2023 revenue forecast to between $6.5 billion and $6.6 billion, down from roughly $6.9 billion.

Retailers face another danger this holiday season. Inventory pressure. Retailers placed holiday orders early because of supply chain concerns. But Ohmes said in October that inventory levels across the retail space are at all-time highs.

Thus if holiday sales aren't as robust as retailers planned, they may have to deal with a lot more leftovers than a big turkey dinner. To move those leftovers they'll take markdowns and potentially a margin hit in the process, says Ohmes' report on holiday sales.

Follow Kathleen Doler, IBD's Special Reports Editor, on Twitter @kathleendoler.
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