Black Friday has become a much-anticipated financial fixture for retailers as it kicks off the holiday shopping season – a crucial annual milestone in the quest to meet their bottom lines.
The National Retail Federation forecasts holiday sales will grow between six and eight percent from last year. Over the past 10 years, holiday sales have averaged an increase of almost five percent, with recent pandemic spending accounting for considerable gains. While consumers are feeling new pressure from the inflationary economy, they remain resilient and continue to engage in commerce.
This is positive news for retailers as many are over-inventoried. Due to supply chain unpredictability of deliveries, retailers placed too many orders and now many are challenged with too much inventory. As a result, gross margin expectations for next year are too high, as storage costs and markdown allowances rise.
Electronics, in particular televisions, are one overstocked industry category. Consumers may expect some aggressive discounting in this category. Household items, home goods and apparel are also seeing some overstock, delivering the deepest discount levels in at least three years.
However, cosmetics enjoy rising consumer demand and personal care, and beauty stores are experiencing significant sales increases.
E-commerce is still predicted to do well. The National Retail Federation expects online sales to increase between 10 and 12 percent, possibly up to $267 billion. E-commerce saw extraordinary growth during the pandemic and continues to grow. However, consumers are expected to shift back to in-store shopping – seeking a more traditional holiday shopping experience – including comparison pricing, reflecting more budget conscious shopping trends this year.
Many small retailers have felt compelled to pass cost increases to consumers. While this can be a challenge for consumers, it is a necessary step to keep small businesses running and cover the cost of production. Stores that have not increased their prices have taken a temporary hit to their profit margins. In general, small business owners report that customers are spending less.
Regarding the guest experience, retailers are tasked with being more innovative as they juggle labor efficiency with customers’ demand for high-quality service options. The return of brick-and-mortar store visits require flexibility with curbside pickup, online sales and a better in-store experience.
Overall, holiday spending is expected to be healthy even with recent inflationary challenges and the forecast is optimistic for Black Friday sales.
Marjorie Weinberg is a Senior Underwriter at Atradius Trade Credit Insurance. Weinberg has been at Atradius for almost 30 years and in the credit insurance business since 1979. She is a graduate of the University of Maryland-College Park.
