Inflation is forcing holiday shoppers to be more strategic in their gift shopping

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This time last year, Alexis Taub’s direct jewelry business was flooded with orders for tennis bracelets and tennis necklaces.

“People didn’t care what they spent,” he said, noting that the pieces could cost several thousand dollars. “The number of orders we’ve had for them has been crazy.”

This year, there’s been a change—customers are opting for gifts in the low three-figure range, such as gold rings and single-stone bracelets and necklaces.

“People are so price conscious now,” said Taub, 29, who owns Alexis Jae Jewelry in Westchester, just north of New York. “Our volume is actually up, even though the average order price is down.”

Consumers have shown remarkable resilience this year in the face of stubbornly high inflation and rising interest rates. But the cracks are starting to show, experts say, as the holiday shopping season ramps up.

Retail sales data, consumer surveys and quarterly Earnings reports from some of the nation’s biggest chains out this week suggest a more subdued holiday shopping season than 2021, when Americans were shaking off their pandemic. Consumers are more strategic – looking for deals, comparing prices and trading down as well as to cut back on what they buy themselves.

“There’s a kind of underlying resilience that’s always out there,” said Jonathan Sharp, managing director in the consumer and retail group at consultancy Alvarez & Marsal. “I think right now, though, that masks the fact that the consumer is really making it difficult for retailers to make that consumer spending profitable.”

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And while stores give these savvier shoppers what they want, like earlier sales and more discounts, he said, the catch is that it “actually eats away at their profit margins.”

This is reflected in the latest federal figures. On Wednesday, the Census Bureau reported that retail sales rose 1.3 percent in October — though much of that spending went on essentials like gas and food. Americans also spent more on furniture and even cars, but continued to fall behind on technology such as laptops and smartphones and appliances.

Meanwhile, third-quarter financial results from brands including Wayfair, Kohl’s and Target showed profits slowed despite early and steep discounting to unload excess inventory. Target alone saw its net income drop nearly 90 percent from the same three months last year.

“It has sent a wave of concern through the industry and people are very cautious with guidance and are prepared almost for the worst,” said Neil Saunders, managing director at analytics firm GlobalData. “… This idea that consumers are defying gravity and will continue to spend at high levels indefinitely, I think is coming to an end.”

Economists and policymakers are closely watching consumer spending — which makes up more than two-thirds of the U.S. economy — for any sign of a slowdown in demand. At the same time, the Federal Reserve is trying to stem historically high inflation by raising interest rates in a way that doesn’t tip the country into recession. The labor market remained strong, which helped consumers continue to spend.

But now, even more affluent buyers are feeling the pressure and making more modest choices. A recent consumer sentiment survey by Alvarez & Marsal found that 45 percent of consumers earning $150,000 or more are concerned that products have become too expensive. This is an increase of 10 percentage points since the spring.

Walmart and Marmaxx — its brands include TJX and Marshalls — were the winners this earnings season, Saunders said, attracting those higher-income people who wanted better value when they shopped. On Tuesday, Walmart said its third-quarter sales rose 8.7 percent. investors excited by fueling its share price by 6.5%.

Walmart’s appeal is its promise of “everyday low prices” and convenience: Shoppers can pick up groceries, a pair of shoes and a new flat-screen TV all at once. It also has one of the largest retail footprints in the country.

Quarterly Sales at the umbrella company for TJX and Marshalls were up 3.3 percent from 2021 and a shocking one 17.3 percent from 2019 before the pandemic, Sanders said.

“One of the reasons he’s good in development is because he’s a value player,” he said. “They get customers who transact from other parts of the market.”

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According to Alvarez & Marsal, 7 out of 10 consumers modify their spending this holiday season. Nearly 40 percent of shoppers said they will spend less on gifts for themselves this year, 35 percent said they will spend less on gifts for others and about a quarter said they are giving gifts to fewer people.

“It’s a general intent to limit gifts,” Sharp said.

Ivan De Leon, 23, said he’s pulled away from his usual pleasures, such as a video game, a new phone or other electronics. Money has been tight this year, she said, so she’s been thinking about the vacation for months.

“Because it’s gotten more stressful and expensive over the last few years, I’ve pretty much downgraded to like, instead of buying big fancy things on my travels, I’ll buy maybe like a little trinket… which tends to be a lot cheaper,” said De Leon, who volunteers in Louisiana before moving to Georgia to work as a firefighter.

Consumers are also more intentional. Unlike previous years, Hassaan Qazi, 23, is budgeting and making a plan for his gift this year. Inflation is the driving factor, he said.

“I’ve always been blessed to have a certain amount of money, so money hasn’t been a huge problem for me in the past, so I’ve never been very disciplined about how I spend it,” said Qazi, a data analyst. “But this year I think, no, I really have to pay a lot more attention because there’s so much money going around.”

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Of list includes new furniture for his New York apartment and a MacBook Air for his mother. Unlike most consumers, who start shopping long before Thanksgiving, Qazi plans to wait until Cyber ​​Monday to secure items.

The National Retail Federation and other trade groups are optimistic about the holiday shopping season. Earlier this month, the NRF predicted that retail sales would increase by 6 to 8 percent this November and December. The figures are not inflation-adjusted. Even without an exact comparison, it’s a fact that “people are paying more for less,” Saunders said.

But industry experts agree that people will still shop this year because consumers view holiday spending as essential.

“No one goes into the holidays saying, ‘Hey, let’s be melancholy,'” Saunders said. “People want to have good holidays. They want to buy nice gifts. They want to have nice food on the table. So people are still ready to spend, and ready to dig deep enough to spend as well.”

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