Although with great differences, consumption has been one of the main factors that have supported the economies of the United States and Europe. In the first case, its resilience was the real protective shield that allowed companies to continue to maintain sales and saved the economy from the recession cycle into which they could have been pushed by high interest rates. In Europe, although industrial fragility has hit some of the continent’s main economies, notably Germany, the reality is that consumer spending remains at historic highs with, according to figures from the European Commission1,861 million euros the second and the last recorded quarter. However, a threat hangs over this pillar of the economy of both regions: a Christmas plagued by doubts and uncertainties.
The Christmas period is a very important time for confidence in retail and for consumption in general. These important dates (which start in mid-November and end in early January) are when businesses around the world spend the entire year. In the case of the United States and according to the National Retail Federation 19% of full-year retail sales They are concentrated on these dates (during the last five years). In addition, these represent a paradigmatic point, since “they are the most profitable of the year because the greatest volume of these purchases is made without significantly increasing the fixed costs of retailers”.
In Europe, the situation is really similar. According to HDE figures for Germany, the season accounts for 18.5% of all retail sales in the year. From Black Friday to the festivities of the “stars of December” to the big hangover of January with big post-Christmas discounts. This period represents a turning point for the entire year which will define consumption. These dates mark a period when consumers double their spending. However, more and more experts fear that this year there will be a disappointment after years full of pessimism but which were resolved by a good winter season.
This is according to the latest report from S&P Global, in which they estimate that with economies becoming increasingly lean, consumers will finally start to notice the impact of inflation. “How it begins the 2024 holiday shopping seasonpersistent inflation continues to undermine consumers’ purchasing power. “This is expected to lead to a slowdown in sales growth in the most important quarter for retailers,” says the rating agency.
This comment refers to both the United States and Europe. In the case of “old continent” comment that “last quarter sales are critical and this ‘golden quarter’ represents up to a third of retail sales and up to half of these for some retailers, notably those of discretionary products like clothing , jewelry, toys or electronics, among others.
In this sense, the company explains that it is counting on a clear slowdown. In the United States, they expect retail sales growth of up to 3% (down from 4.7% last year and even more than the average of the last decade of 5%). These figures coincide with those of the National Retail Federation, which expects a range between 2.5% and 3.5%. In other words, total sales could reach $989 billion. Although this is an all-time high, the association stressed that consumer behavior is “changing” and there is progress toward “slower growth.”
Regarding Europe, they expect a very similar slowdown until growth is limited. in a range between 2 and 3%. This is particularly visible in Spain. Accenture experts already say that consumers in the Iberian country expect to spend 463 euros compared to 515 last year, according to Accenture, or 10% less. Specifically, the firm highlights that consumers will primarily focus on Black Friday and Cyber Monday as notable days. In this sense, he emphasizes that the margins of companies will depend on the balance that they can achieve in their inventories without sacrificing profits. For its part, Deloitte speaks in its latest report of the weakest growth of “Christmas” in six years.
Since Attain, they are openly talking about a “lukewarm season” for Christmas shopping. As reported by advice only 26% of those questioned in their last survey say they will increase their purchases while 43% say they will reduce them, with a quarter speaking of significant reductions. “The obvious culprit is inflation, which has been the focus of concern, with 60% saying they would cut their overall spending because of the issue.”
Despite everything, they hope that the strength of the job market in the two regions will soften the shock. In the case of the euro zone, unemployment remained at 6.3% in Octoberwhile in the United States it stands at 4.1%. In fact, the rise in wages seen last week in Europe shows how the labor market continues to provide arguments in favor of maintaining spending and in fact represents one of the ECB’s big challenges in curbing inflation .
“Companies will likely have to offer more offers and use advertising to attract buyers”
That’s why Colliers’ Nicole Larson believes that while it won’t be like 2023, “we will see a strong season, driven by consumer optimism and consistent spending.” However, the company itself speaks of a slowdown with Christmas sales increase by 2.9% compared to 4.7% from last year. The reason is clear: “High prices remain a major concern.”
However, even this would precede a drop in demand, which could particularly harm company stocks which, since 2021, have been building up on these dates, especially given the threat of a supply crisis. In this sense, this will “probably lead them to have to offer more offers and use advertising to attract buyers,” says S&P Global, which will likely limit profitability.
Companies are sounding the alarm
When it comes to the United States, this isn’t something only experts notice. The same companies are already launching a notice. In this affair, the last to speak out on the subject was Target, which warned last week, during the presentation of its results, that it was reducing the outlook to a slow increase in sales of 0.3% last quarter, which led to a 22% drop in its titles in a single day (Wednesday).
“Consumers tell us their budgets remain tight and they are shopping carefully while theyworking to overcome cumulative impactor several years of price inflation,” CEO Brian Cornell said on a call with analysts.
Walmart, on the other hand, was more optimistic thanks to the lower prices thanks to which it managed to maintain its sales throughout the presentations of results. “The fourth quarter will be fun to watch. And the calendar isn’t our favorite, with fewer days between Thanksgiving and Christmas. And I suspect that once all that is said and done, it will be similar to the kind of momentum we saw in the first three quarters,” Walmart CEO Doug McMillon said on a conference call after results Tuesday.
The company announced that it expects a stable season after achieving Sales up 5.3% last quarter and raised the sales outlook for the full year to 5.1% from the 4.75% budgeted so far. In any case, they speak of a “slight increase” given that “consumers will be demanding in the current context”.
Mastercard noted that, in the case of Europe, sales of the Christmas period increases by 2.9%. According to the company, this “reflects the resilience of European consumers amid a complex economic landscape.” Of course, in a context in which “they balance their aspirations with pragmatic approaches to spending”. Even if they consider this increase to be positive, it marks a real decline with the 3.7% that they predicted for the year 2023.
Affirm, without providing such specific data, said it expects a “slow shopping season” given that consumers “while not controlling their spending, they are taking a more cautious approach to their purchases.” The payments network said that in its latest survey, 73% of users said they would be more careful with their Christmas spending.
