Affluent Consumers Plan Fewer Gifts And More Travel, Cutting Into Retail Holiday Sales 2022

Throughout the critical holiday season of November and December, the National Retail Federation predicts retail takings will total between $942.6 to $960.4 billion, a 6% to 8% increase over last year. This estimate excludes spending at automobile dealers, gasoline stations and restaurants.

The macro estimate includes all retail expenditures for gifts and other holiday-related purchases, plus everything else.

Digging just into holiday-related purchases, the NRF survey conducted by Prosper Insights & Analytics found consumers plan to spend $833 on average for gifts and non-gift holiday items such as decorations and food. It also reported that figure is “in line with the average for the last ten years.”

Averages being what they may, a look at last year’s predicted spend finds consumers were more bullish in 2021. Last year they expected to spend $879 on gifts and non-gift holiday items, so this year’s expected expenditure represents a 5% drop overall.

Predicting that lower-income consumers may be pulling back from spending on discretionary holiday-related purchases in favor of essentials during this period of high inflation, the NRF explained higher-income consumers will more than make up for any shortfall.

Calling it stratification, NRF CEO Matthew Shay said “higher income households plan to spend significantly more, on average, on holiday gifts and seasonal items.”

However, studies from Deloitte and IBM challenge this assumption. Their research suggests that higher income and more financially-secure consumers expect to buy fewer gifts this year while spending significantly more to travel.

Taken together, these trends could take some hoped-for holiday gains away from retailers and put them into the experiences bucket.

Deloitte Says

Deloitte has been surveying consumers about their holiday plans for nearly 40 years and finds a similar expected decline of 5% overall on gifts and other non-gift holiday purchases.

However, Deloitte’s study also includes planned expenditures on experiences, including entertainment and socializing in restaurants, concert tickets and close-to-home travel. Those experiences represent a 7% gain.

Overall, consumers’ planned holiday-related spending, including experiences, is flat from last year, at about $1,460 in both years. The Deloitte survey sampled responses from 4,600 U.S. consumers.

Budgets Cut Among High-Income Consumers

Looking more closely at the higher-income households ($100k+ income), Deloitte finds their planned spending will drop 7% overall, from $2,624 last year to $2,438 this, with the average retail-related spending off 11%, from $1,424 versus $1,607 in 2021.

“The higher-income group is pulling back in categories like electronics and home, places where they spent during Covid,” said Stephen Rogers executive director of Deloitte’s Consumer Industry Center.

“When it comes to gifts, they are pulling back in everything but gift cards. And they are showing a 23% decline in non-gift holiday purchases. They’ve already got as many Christmas lights and decorations as they need,” he continued.

Drop In Number Of Gifts

Another troubling sign is that consumers will purchase fewer gifts this year, down from 16 gifts last year to nine this year overall. High-income consumers show a similar drop, from 19 gifts last year to 11 this year.

Even if high-income consumers cut back on individual gifts in favor of larger-value gift cards, their expenditures won’t show up on retailers’ books until the gift card is presented for purchases.

“In an inflationary period where everybody’s thinking about the value of money, giving a gift card worth $50 is a way to demonstrate the value of money, or conversely, it could be a way to pass the inflationary buck on,” he shared.

Everything Down But Gift Cards

Overall, when Deloitte breaks down total holiday spending by product category, it doesn’t look pretty. Every one of the eight categories included shows a drop, except gift cards, up 7%.

For example, spending on pets is down 28%, health/wellness and home/kitchen are off 19%, and electronics and clothing/accessories are down 14% each. Expected spending on food and beverage is off by only 8% and toys are down 5%.

“We’ve lived through some extraordinary times the last couple of years, with inflation at a 40-year high. Everybody’s zigging and zagging with what the world’s been giving them,” he continued.

Whether the high-income consumers will zig into the holidays to prop up retailers’ end-of-year numbers is anybody’s guess, but Deloitte’s dive into the high-income consumer expectations doesn’t bode well.

IBM Says

IBM’s “2022 Holiday Shopping and Travel Report” provides another perspective on how the higher-income consumers are approaching the holiday season. It also includes a view of travel-related expenditures beyond Deloitte’s more limited look at experiences within 75 miles from home. Overall, IBM finds travel budgets are up 49% year-over-year.

And instead of segmenting its global survey sample of 12,000 adults by income alone, it factors in income along with debts expenses, contributions to savings and overall financial situation to identify four different consumer groups in order:

  • Insulated 41% who’ve maintained the status quo with a modest decline in debt, but all other things being equal.
  • Strained 31% with declining incomes and dwindling saving along with rising debt.
  • Secure 18% whose finances are on the upswing with increased income, more contributions to savings and investments.
  • Frugal 11% are financially conservative with decreased savings and investments, but they’ve adjusted spending to keep debt in line.

The Secure segment are most comparable to Deloitte’s high-income segment and where they are really going to pick up the pace is travel.

Globally, the Secure expect to more than double their holiday travel spending with the U.S. Secure planning to spend upwards of $22,000 on holiday travel alone.

Recognizing that people tend to spend both before and during travel in retail, IBM’s Karl Haller said their overall holiday budgets would get a 20% boost, but some of that spending was likely to have been pulled forward out of November and December in preparation for their journeys. 

The Secure consumers are raring to return to normal holiday festivities, but Haller observed that the other three consumer segments – Insulated, Strained and Frugal – have contingency plans.

“The Secure are going to spend regardless, but everybody else has a backup plan. Depending on the economic outlook, how bad inflation is, how much prices rise or if new lockdowns are imposed, the rest are going to pull back in some places to make room in others,” Haller observed.

“It amounts to a relatively small group of Secure people driving a lot of spending.”

Cautiously Optimistic

Both Deloitte’s Rogers and IBM”s Haller put a positive spin on their data for the upcoming holidays. At the same time, they recognize reading the tea leaves this year is particularly challenging, especially where the affluent are concerned and how much weight the NRF places on them for positive holiday retail results.

In Deloitte’s survey, only the higher-income segment expected to pull back holiday spending, while the lower and middle-income consumers signaled an uptick, but not enough to move the needle beyond the survey average of $1,460 from last year.

“We are seeing a bit of that dichotomy between the lower and high-income consumers this year,” Rogers said. “The high-income group may be paying closer attention to the economy and other macro indicators. If they looked at their retirement portfolios recently, they are not feeling good.”

Haller said all the noise in the media surrounding inflation and the economy is making it hard to get an accurate fix on how the consumers will perform, especially as two-thirds of the consumers said they are most worried about financial issues.

“I never believe the dollar amounts in predictions, like NRF puts out spending amounts down to the cents. That is false precision,” he maintained. “To me, a better view is gained by looking at consumers’ attitudes, intentions and their mood going into the holidays.”

“If most people say they are going to cut back, it’s probably going to be a bad holiday regardless. If people say they are going to spend, it has a shot at being a good holiday. But there is still so much going on and so much uncertainty.”

Inflation Casting A Pall On Consumer Sentiment

A traditional Likert rating scale may provide the best view of how people will approach their holiday spending, and that is muddied by inflation.

Deloitte finds 52% of consumers expect to spend about the same this year as last. But given the high inflation rate, they will either be forced to cut back on the number of items purchased or buy more promotionally priced items to keep level. 

Slightly more, 26%, plan to spend less this year than expect to spend more, 22%. But both the increased and decreased spending groups cite inflation as the primary factor influencing their choice.

Of those who expect to spend more, just over half cited higher costs as the primary factor. In other words, they don’t necessarily want to spend more but expect to because things will cost more this year.

For those who plan to spend less, two-thirds said higher costs are the reason. Their financial situation is forcing a cutback.

One thing is for sure: people crave a return to normalcy this holiday season. Further, the resiliency of U.S. consumers is something retailers count on. And what people say they are going to do on surveys isn’t necessarily what they actually do.

But this season, retailers will need to lean into the higher-income, financially secure consumers to pull them through, and whether those capable of spending more will carry retailers over the finish line is up in the air.

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