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Retail strong in holiday shopping season despite inflation

Retail strong in holiday shopping season despite inflation

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This holiday shopping season, retailers saw increased sales despite high inflation rates.

“Consumers have stared inflation right in the face and spent right through it,” said Anirban Basu, chair and CEO of the Sage Policy Group Inc. “…The retail sales numbers, of course, are colored by inflation itself so it is not necessarily the case that they are buying more items. They are spending more for the items that they are buying. Spending has been pretty significant, and the consumer has yet to really capitulate in the face of all this inflation. That may happen next year.

“I think it will. As you know credit card debt is building up on household balance sheets but for now consumers continue to (spend).”

Jie Zhang, Ph.D., professor of marketing at the University of Maryland Robert H. Smith School of Business, notes inflation is definitely playing a role in retail spending.

“It is putting so much pressure on so many households limiting their ability (to spend),” she said. “A lot of shoppers go into this holiday season with a strict budget and, if we look at overall spending, we can be fairly optimistic that we are going to see total spending is going to be higher than last year. “

However, she cautions, we need to factor in the 8% inflation rate into these numbers. “Personally, I think (spending) is probably going to be slightly lower than last year if we subtract by 8% inflation rate.”

Zhang notes the retail industry is seeing a bipolarization trend which is certainly a reflection of the purchasing power across the income spectrum. People in the lower to middle incomes are feeling the brunt of the pressure of inflation as well as rising interest rates. “That would certainly limit people’s willingness to open up their wallet especially if they have to carry balances on their credit cards,” she said.

People that have been doing well during the pandemic years are continuing to spend. Zhang believes this is evident as luxury goods retailers have been doing well this year with some brands expanding to markets they have not tried before. Other areas she has seen as bright spots in the retail industry include essential products, discount retailers and e-commerce platforms.

Since February 2020, Basu notes online retail has seen the highest percentage growth in spending.

“Part of that is due to the pandemic but also due to the incredible comparative advantages of online retailers,” he said. “They offer the largest inventory. They offer the greatest selection and often offer the lowest price and therefore they continue to scoop up market share.”

Small businesses are still hurting from the pandemic, according to Zhang, due to multiple factors like supply chain disruptions and rising shipping costs.

“Many of them never recovered from that,” she said. “To make things worse, as we know, this year rising inflation pressure as well as interest rates certainly are putting even more stress and pressure on small local businesses. Many of them haven’t even recovered from (the COVID-19 pandemic).”

Experts estimate 2023 is going to be a really tough year for the retail industry. “2023 is likely to usher forth a recession,” Basu said. “Not a particularly modest one or mild one. I think you might see asset prices really suffer in 2023. Consumer confidence might slide further, and it is already very low. We might actually see what has been a very strong job market which has helped to propel retail sales begin to buckle next year and I would expect to see a period of job loss.”

This article is featured in The Daily Record's Doing Business in Maryland 2022.

Full coverage: Small businesses struggle, hold on to hope for more government RELIEF | Future of live, work and play developments appears murky | Manufacturers adapt and adjust, look toward a vaccine to help return to more normal

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