Why this holiday season, shoppers might finally be ready to buy fancier stuff

By Bill Peters

Adobe expects $240.8 billion in U.S. online spending over the holidays, another record

Two years ago, when Amazon.com Inc. first held a second Prime Day event in October, some analysts saw it as a defensive move intended to whip up sales from inflation-weary shoppers.

Now, it's just another entry in the promotions parade for the ever-expanding holiday-season sprint - albeit for still-anxious consumers, as price increases for things like groceries and essentials continue to weigh on spending for things like clothes, toys and electronics.

Last week, Amazon (AMZN) said its Prime Big Deal Days event would take place Oct. 8-9. At that time, Target Corp. also announced its Circle Week, which will run from Oct. 6-12. And, inevitably, Walmart Inc. that week also said that its Holiday Deals event would run from Oct. 8-13.

For the two days encompassing Amazon's deals event next month, Adobe expects U.S. online spending overall to hit $8.6 billion, up 7.2% year over year. From Nov. 1, when holiday spending picks up in earnest, through Dec. 31, Adobe expects U.S. online sales of $240.8 billion, an 8.4% gain and a new record.

The events will arrive after shoppers last year crammed more of their holiday shopping into big discount days. However, analysts say that newer entrants to the online discount wars, like Temu, Shein and TikTok, could pose more holiday-season competition this year. Influencers and chatbots, meanwhile, could play a bigger role in shaping consumers' purchases.

But as with 2021, the state of the supply chain and labor are back in focus, as workers at East Coast ports threaten to strike. The Federal Reserve this month cut interest rates for the first time in four years to loosen up consumer borrowing and spending. However, analysts since have debated the impact, and say its effects won't take hold with consumers overnight.

Still, Vivek Pandya, lead insights analyst at Adobe, said that as inflation starts to cool off, shoppers this year could have a bigger appetite to buy higher-end items, provided retailers price them properly.

"Because there are all these discounts happening, they'll end up buying gifts for other people, friends, family," he said. "They'll likely be shifting up to more premium versions of these goods, because this holiday season affords them one major moment to actually trade up a bit, whereas throughout the rest of the year, they've been trading down."

October's deals will follow higher sales during the two-day Prime Day period in July, when online spending overall landed at more than $10 billion, according to Adobe. The closer timing to the back-to-school season, coupled with summer travel, helped.

Now, Pandya said, more people could wait out October's deals for bigger ones closer to the holidays.

"Given the priority of price, and the perception they'll get even better pricing during the Cyber Five, that will have some some consumers holding back," Pandya said, referring to the five big shopping days between Thanksgiving and Cyber Monday.

More broadly, retail sales are still in flux. While Amazon's Prime Day in July set records, U.S. retail sales overall last month ticked only 0.1% higher from July, and up only 2% from last year.

"July benefited from Amazon Prime Day and copycat promotions, and the momentum didn't continue into August," Bankrate analyst Ted Rossman said in emailed commentary.

Executives at many retailers over the past few weeks have continued to warn of deeper consumer caution. However, analysts have said the biggest retailers - those would be Amazon, Walmart (WMT), Target (TGT) and Costco Wholesale Corp. (COST) - have shown signs of getting back to normal more quickly.

John Mercer, head of global research at Coresight, said the Federal Reserve's rate cut "may provide a slight lift" to consumer confidence heading into the holiday shopping season. He also noted, pointed to easing inflation, an economy that's still growing and a job market that has slowed only slightly.

"However, while economic expectations have improved, personal financial expectations have stagnated," he said, citing data from his company.

With all that in mind, online discounts could run up to 30% of an item's listed price, Adobe said. That's in line with the levels seen last year.

Meanwhile, Adobe found, traffic to retail sites from artificial intelligence-based chatbots had doubled between Jan. 1 and Aug. 31. While questions remain about the quality of AI, two out of five people said they planned to use chatbots during the holidays, as they seek ways to make more refined online searches for deals.

Moreover, 37% of Gen Z shoppers have said they bought something based on the recommendation of an online influencer, Adobe found. And the company found that while more traditional search options helped drive online retail sales, social-media influencers "convert shoppers 10 times more than overall retail traffic from social-media platforms."

Amazon, in its announcement last week, said new deals would land "as often as every five minutes during select periods" during its two-day event in October. And it said to expect deals from brands like Clinique and toys like Barbie and Squishmallows. Interest in Barbie boomed last year, thanks to the Greta Gerwig-directed blockbuster movie. But a similar boom last year for Squishmallows has left at least one retailer with something of a hangover this year.

Meanwhile, Target said that it would be offering "50% more new items than last year." It plans to hire some 100,000 more seasonal workers and will offer exclusive beauty items from Papatui and Being Frenshe. Walmart will be offering price cuts on things like laptops, air purifiers and refrigerators.

"Customers are still shopping, especially for seasonal events," Latriece Watkins, the chief merchandising officer at Walmart U.S., said during a call with reporters last week.

"They aren't missing moments to celebrate together," she continued. "But just like they've been all year, customers from all income levels are looking for value, and we have it."

She said the company was hoping that a strike could be averted along the East Coast and Gulf of Mexico, as unionized dockworkers and their employers try to work out a new labor contract by Sept. 30. But she said the company had maintained "additional sources of supply" to work around potential jam-ups in shipping, without elaborating.

The Fed's decision to cut interest rates will lower corresponding rates on things like credit cards and auto loans, and could help thaw out the housing market and mortgage rates. But analysts debated whether the cut - half a percentage point - was too aggressive.

Christian Hoffmann, head of fixed income at Thornburg Investment Management, told MarketWatch that the size of the rate cut had led to "marginal increased concern about reigniting inflation," as lower rates attract more borrowers and buyers.

"Consumers should consider that they beat inflation when prices stop rising, not when prices revert to their former levels," he said.

Eric Clark, portfolio manager at Accuvest Global Advisors, also said stimulating the economy while containing unemployment and inflation wouldn't be easy. And he said that he expected a "re-acceleration in some inflation."

"Prices are still generally higher than they were pre-pandemic, particularly in the services economy," he said. "It will take some time for lower rates to work [their] way into actual economic activity. But from a consumer perspective, a collective sigh of relief should be expected."

-Bill Peters

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09-25-24 0801ET

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