January 23, 2023

Americans cut back on holiday spending in the face of inflation

by Jharonne Martis.

The latest December U.S. retail sales surprised observers as the headline index shows sales were weaker than already-weak expectations for December. U.S. retail sales fell 1.1% month over month in December, bringing the year to an end on a weak note.

On a month-over-month basis, many categories struggled across the board. Shoppers spent less on vehicles, gasoline and furniture. However, on a year-over year basis, the non-store retailers and food services & drinking categories saw a whopping 13.7% and 12.1% growth, respectively.

Thus, on a year-over-year basis, it’s clear that shoppers continue to spend more eating out, and when buying gifts, more money was spent online.

Exhibit 1: U.S. Retail Sales – December 2022

Source: Refinitiv IFR


For Q4 2022, the Refinitiv Retail/Restaurant Index is looking at a -21.0% blended estimated earnings growth rate, and a 4.4% blended estimated revenue growth rate.

Ten out of the 11 consumer-related industries have turned negative. Of the 202 retailers tracked by Refinitiv, the Hotels, Restaurant & Leisure sector is on track to record the highest estimated earnings growth rate in the fourth quarter, recording a 251.1% surge over last year’s level. This is in line with the latest December retail sales data showing that dining out is much more popular than a year ago.

The forecasts for the holiday season’s Q4 2022 show that consumers gravitated towards experiences as opposed to mall visits.

Exhibit 2: Q4 2022 Earnings Growth Rates: Refinitiv Retail and Restaurant Index

Source: I/B/E/S data from Refinitiv

Inventory and Discount Levels

Holiday discounts were at the highest levels of the year. Retailers were dealing with high inventory levels, and retailers such as Target increased promotions to get rid of excess inventory.

Looking toward Black Friday and Cyber Monday, U.S. retailers put a lot of goods on sale, just in time for the start of the holiday season. In 2022, a whopping 43% of U.S. retail online merchandise was on sale during the holiday season. Refinitiv discovered this in a collaboration with Centric Pricing, formerly StyleSage, which analyzes retailers, brands, online trends and products across the globe.

The December discount penetration (how much of the assortment is on sale) of 43% was also above the 2022 average of 36%, and back to pre-pandemic levels, when the average discount rate was 42%.

However, retailers started 2023 by removing a lot of the holiday merchandise on sale. This is common in the beginning of the year, before they ramp up discounts again in February. The discount penetration decreased to 30% in January — a sign that retailers were pulling back on holiday promotions across categories.

Meanwhile, the average percent discount in December was 39.6%, and rose to 40.8% in January. This is above the 2022 average of 39.3% and is slightly below the pre-pandemic level of 41.9%.

This means that retailers started the new year offering less merchandise on sale. However, in order to lure shoppers in, retailers have raised the average discount on the merchandise on sale.

Exhibit 3: US Online Retail: Discount Penetration and Average Discount: 2019 – 2023

Source: StyleSage Co.

Refinitiv Consumer Confidence Begins 2023 Above the 50‐Point Mark, but Remains Muted

January’s Refinitiv/Ipsos Primary Consumer Sentiment Index finds that while American consumer confidence has rebounded slightly from December, sentiment at the start of 2023 is still somewhat muted. The main index and its respective subindices are starting the year significantly lower than they did to begin 2022. Lastly, Americans continue to remain worried their job security, purchasing confidence, and future expectations.

The strong labor market drove retail sales last year. However, due to rising costs, the Refinitiv Retail/Restaurant Index data shows that earnings are expected to drop 20.9% for the fourth quarter of 2022. Whether or not the consumer remains engaged in 2023 will depend on the U.S. unemployment data.

Exhibit 4: Refinitiv/IPSOS Primary Consumer Sentiment Index, 2010-2022

Source: Refinitiv/IPSOS

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