High-income consumers are planning fewer gifts and more travel, driving down holiday 2022 retail sales

Throughout the critical holiday season of November and December, the National Retail Federation projects retail revenue will total between $942.6 billion and $960.4 billion, an increase of 6% to 8% from to last year. This estimate excludes spending at car dealerships, gas stations and restaurants.

The macro estimate includes all retail spending for gifts and other holiday-related purchases, as well as everything else.

Digging only into holiday-related purchases, the NRF survey by Prosper Insights & Analytics found that consumers plan to spend an average of $833 on gifts and non-gift holiday items such as decorations and jewelry. food. He also indicated that this figure is “in line with the average of the last ten years”.

Averages being what they might be, a look at last year’s planned spending reveals consumers were more optimistic in 2021. Last year, they expected to spend $879 on gifts and vacation items non-gifts, so the planned spending for this year represents an overall decrease of 5%.

Predicting that lower-income consumers could retreat from spending on discretionary holiday-related purchases in favor of essentials during this period of high inflation, the NRF explained that higher-income consumers would 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 by Deloitte and IBM challenge this assumption. Their research suggests that higher-income, more financially secure consumers expect to buy fewer gifts this year while spending significantly more on travel.

Taken together, these trends could take away some hoped-for holiday gains from retailers and put them in the shopping cart of experiments.

Deloitte says

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

However, Deloitte’s study also includes planned spending on experiences, including entertainment and dating in restaurants, concert tickets and travel close to home. These experiments represent a gain of 7%.

Overall, expected consumer spending on vacations, including experiences, is flat compared to last year at around $1,460 in both years. The Deloitte survey sampled responses from 4,600 US consumers.

Reduced budgets among high-income consumers

Looking more closely at high-income households (income $100,000 and above), Deloitte finds that their projected spending will drop 7% overall, from $2,624 last year to $2,438, average retail spending decreased by 11% to $1,424 from $1,607 in 2021.

“The high-income group is shrinking in categories like electronics and home, places they’ve been dropping during Covid,” said Stephen Rogers, executive director of Deloitte’s Consumer Industry Center.

“When it comes to freebies, they take out everything except gift cards. And they show a 23% drop in holiday purchases without gifts. They already have as many Christmas lights and decorations as they need,” he continued.

Decrease in the number of gifts

Another troubling sign is that consumers will buy fewer gifts this year, dropping from 16 gifts last year to nine this year overall. High-income consumers are showing a similar drop, from 19 gifts last year to 11 this year.

Even if high-income consumers reduce their individual gifts in favor of higher value gift cards, their spending will not show up on the books of retailers until the gift card is presented for purchases.

“In a time of inflation when everyone is 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 blame for inflation,” he said.

Everything except gift cards

All in all, when Deloitte breaks down total holiday spend by product category, it doesn’t look pretty. Each of the eight categories included is down, with the exception of gift cards, up 7%.

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

“We have had extraordinary times over the past two years, with inflation at its highest level in 40 years. Everyone weaves and weaves with what the world gives them,” he continued.

No one knows if high-income consumers will zigzag over the holidays to support retailers’ year-end numbers, but Deloitte’s dive into high-income consumer expectations doesn’t bode well.

IBM says

IBM’s “2022 Holiday Shopping and Travel Report” offers another perspective on how high-income consumers approach the holiday season. It also includes a view of travel spend beyond Deloitte’s more limited look at experiences within 75 miles of home. Overall, IBM finds that travel budgets have increased 49% year over year.

And instead of segmenting its global survey sample of 12,000 adults solely by income, it considers income as well as debts, expenses, savings contributions and overall financial status to identify four groups. different consumers in order:

  • Isolated 41% who maintained the status quo with a slight drop in debt, but all things being equal.
  • Tense 31% with falling income and falling savings and rising debt.
  • Secured 18% whose finances are up with rising income, more contributions to savings and investments.
  • Frugal 11% are financially cautious with lower savings and investments, but have adjusted their spending to keep debt in line.

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

Globally, Secures expect to more than double vacation travel spending, with US Secures planning to spend more than $22,000 on vacation travel alone.

Acknowledging that people tend to spend both before and during retail trips, IBM’s Karl Haller said their overall vacation budgets would be increased by 20%, but some of that spending would likely have been deferred. of November and December in preparation for their travels.

Secure consumers are eager to get back to normal holiday festivities, but Haller observed that the other three consumer segments — isolated, tense, and thrifty — have contingency plans.

“Secures are going to spend no matter what, but everyone has a backup plan. Depending on the economic outlook, the severity of inflation, rising prices or if new lockdowns are imposed, others will retreat to some places to make room for others,” Haller observed. .

“That equates to a relatively small group of secure people who drive a lot of expense.”

Cautious optimism

Deloitte’s Rogers and IBM’s Haller put a positive spin on their data for the upcoming holidays. At the same time, they recognize that reading the tea leaves this year is particularly difficult, especially when it comes to the wealthy and the weight the NRF places on them for positive holiday retail results.

In Deloitte’s survey, only the high-income segment expected to reduce vacation spending, while low- and middle-income consumers reported a slight uptick, but not enough to move the needle beyond the survey average of $1,460 over last year.

“We’re seeing a bit of this dichotomy between low-income and high-income consumers this year,” Rogers said. “The high-income group may pay more attention to the economy and other macro indicators. If they’ve recently looked at their retirement portfolio, they don’t feel good.

Haller said all the noise in the media surrounding inflation and the economy makes it difficult to get an accurate picture of consumer performance, especially since two-thirds of consumers said they were the most worried about financial problems.

“I never believe dollar amounts in forecasts, as NRF indicates spending amounts in cents. It is a false precision, ”he argued. “For me, better insight is gained by examining consumer attitudes, intentions and mood as the holidays approach.”

“If most people say they’re going to cut spending, it’s probably going to be a bad holiday anyway. If people say they’re going to spend, it’s likely to be a good holiday. So many things still happen and so many uncertainties.

Inflation casts a pall over consumer confidence

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

Deloitte finds that 52% of consumers expect to spend about the same this year as they did last. But given the high rate of inflation, they will either be forced to reduce the number of items purchased or buy more items at promotional prices to maintain the level.

Slightly more, 26%, plan to spend less this year than 22% plan to spend more. But both upward and downward spending groups cite inflation as the main factor influencing their choice.

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

For those planning to spend less, two-thirds said higher costs were the reason. Their financial situation requires a reduction.

One thing is certain: people are yearning for a return to normalcy this holiday season. Additionally, the resilience of US consumers is something retailers are counting on. And what people say they’ll do in polls isn’t necessarily what they actually do.

But this season, retailers will have to rely on higher-income, financially secure consumers to push them through, and whether those able to spend more will carry retailers over the finish line remains to be seen. .

See also: Retailers expect “Ho-Ho-Hum” holidays in 2022