What will the Fed rate hike mean for holiday shopping

The latest rate hike may affect holiday shopping for both retailers and consumers. In theory, higher interest rates will slow down consumer spending, reducing demand for goods and services. Weak demand means oversupply and should lead to lower prices. This could directly impact retailers by incentivizing them to discount holiday items early and take deeper write-offs to ensure inventory sells out. Consumers will look early for holiday purchases, look for discounted product prices and want to cover holiday expenses over a longer period.

While the National Retail Federation (NRF) has not officially forecast holiday sales, Deloitte forecast holiday sales to rise 4% to 6% compared to last year (November to January). Neither NRF nor Deloitte included October in its holiday sales forecast, but over the past few years, October has become the leading month for the holiday selling season. Early consumer holiday buying will be driven by Fed rate hikes, early access sales to retailers and the possibility of a recession later in the year. The expected increase in sales from last year, even at 6%, does not cover the increase in the CPI (more than 8.3% through August). Consumers will buy fewer gifts but spend more money.

Factors affecting holiday shopping

Higher interest rates will impact more deeply on consumers who rely on credit cards to make purchases (and don’t pay them at the end of each month) or who have taken out a variable mortgage rate. “The holiday discounting will start soon as a result of higher interest rates; historically, this happened when the Federal Reserve raised interest rates,” said Chirag Modi, corporate vice president of industry strategy at Blue Yonder. Moody discussed how the discount will vary by industry and category, depending on the retailer’s stock level. Moody stated, “Retailers who sit on inventory will have a greater incentive to discount compared to retailers who have less inventory.” He also acknowledged that households would feel the pressure, especially those consumers with variable mortgage interest rates.

Higher interest rates can lead to a recession that causes workers to lose jobs and income. With uncertainty in the next few months, consumers will be more selective about holiday purchases and will start holiday shopping early, as they did last year.

Another major factor that will affect the disposable income of consumers in cold weather regions is the price of crude oil. Home heating costs will be much higher than last year. Even with lower fuel prices over the past few months, year-over-year fuel sales are up 39% and home heating oil is expected to rise 17% from last year.

Giant retailers act quickly to attract shoppers

Major retailers will offer big sales incentives as early as October. targeting
TGT
Announced target deal days from October 6 to October 8, and extended the Price Match Guarantee from October 6 to December 24.

Walmart, the largest US retailer, announced that it will offer thousands of additional Rollbacks during this shopping period, providing deeper savings on top categories including toys, home, electronics and cosmetics. The company has also expanded its return policy; Qualifying purchases made on or after October 1 can be returned until January 31, 2023, and returns can be made at the curb.

It is rumored that Amazon
AMZN
It will offer a second major savings day to its main members around October 11th and 12th but no official announcement has been made yet. This will be the first time that Amazon will hold two major major events, although the second event may be called an Early Access holiday event instead of Prime Day. As the company raised its prime membership from $119 to $139 a year, it was incentivized to give members additional perks.

Amazon can take advantage of a Thursday night football broadcast event to highlight Prime benefits including special sales events. Thursday Night Football streaming (TNF) averaged 13 million viewers according to Nielsen National Television Ratings, 47% higher than an NFL Network game during the same week the previous year. Amazon Prime Video will broadcast NFL games Thursday night through 2033. Reaching millions of viewers could boost revenue in October with an additional Prime sales event and the official TNF program for Prime members.

The holiday begins in October for retailers and consumers

Starting holiday shopping early in October will spread revenue over three months for retailers. Consumers will be motivated to start shopping early to take advantage of the retailer’s incentives and distribution of holiday spending during October, November and December. The NRF says US consumers have started buying their vacations earlier than in years past, to expand their budgets and to avoid, or at least alleviate, the stress of holiday shopping.