Retailers are braced for their biggest test of the year: Will U.S. consumers open their wallets wide for the Black Friday sales that kick off the holiday shopping season?

Consumer confidence is precarious, rattled by soaring inflation in the world's biggest economy, casting uncertainty on this festive shopping season that starts the day that caps the Thanksgiving holiday.

A year ago, retailers faced product shortfalls in the wake of shipping backlogs and COVID-19-related factory closures. To avert a repeat, the industry front-loaded its holiday imports this year, leaving it vulnerable to oversupply at a time when consumers are cutting back.

"Supply shortages was yesterday's problem," said Neil Saunders, managing director for GlobalData Retail, a consultancy. "Today's problem is having too much stuff."

Saunders said retailers have made progress in recent months in reducing excess inventories, but that oversupply created banner conditions for bargain-hunters in many categories, including electronics, home improvement and apparel.
Higher costs for gasoline and household staples like meat and cereal are an economy-wide issue but do not burden everyone equally.

"The lower incomes are definitely hit worst by the higher inflation," said Claire Li, a senior analyst at Moody's. "People have to spend on the essential items."

Leading forecasts from Deloitte and the National Retail Federation project a single-digit percentage increase, but it likely won't exceed the inflation rate.

The consumer price index has been up about 8% on an annual basis, which means that a similar size increase in holiday sales would equate with lower volumes.

Story Date: November 26, 2022