Retailers brace for tougher times and more frugal customers in 2023

January is typically an overlooked month for retailers.

Shoppers make returns and exchanges. They come to stores with gift cards in hand. And they may spring for workout clothes or other items to follow through on New Year’s resolutions.

But this year, January carries higher stakes. The next few weeks, which close out many retailers’ fiscal year, could help determine whether the holiday quarter is a win or a bust. It’s an important time for helping stores clear out excess inventory, too. January could also set the tone for 2023 — when some economists and retail industry watchers anticipate the U.S. will tip into a recession.

So far, early holiday results have been better than some economists and retailers feared. Sales from Nov. 1 to Dec. 24 rose 7.6%, according to data from MasterCard SpendingPulse, which measures in-store and online retail sales across all forms of payment. The figure includes restaurants and is not adjusted for inflation, which rose 7.1% year over year in November.

Yet there are signs that shoppers may be running out of gas. Credit card balances have ticked up. Personal saving rates have fallen. And sales of big-ticket items like jewelry and electronics have weakened.

Plus, Americans’ spending spree during the earlier years of the pandemic, fueled by stimulus money, boredom and socked-away savings, have made for tough comparisons.

Retailers enter 2023 reckoning with the fact that store traffic already lagged during peak weeks of the holiday season.

Across six retailers — Walmart, Target, Best Buy, Nordstrom, Kohl’s and Macy’s — foot traffic dropped by an average of 3.22% year over year for the weeks from Black Friday through the week of Christmas, according to data from Placer.ai, an analytics firm that uses anonymized data from mobile devices to estimate overall visits to locations. It also declined by nearly 5% when compared to pre-pandemic patterns.

Now retailers are more on edge.

“It seems like a lot of the brands are anticipating a bigger thud in January,” said Stacey Widlitz, president of SW Retail Advisors, a consulting firm.

She has noticed more retailers are dangling gift cards to drum up sales. For instance, Urban Outfitters-owned retail chain Anthropologie on Friday offered $50 toward a future purchase for online shoppers who spend $200 or more. But that bonus cash must be used by Jan. 31, when the company’s quarter ends.

Widlitz said those offers are focused on nudging shoppers to make purchases during a time when there’s often a post-holiday lull. It is also retailers’ last chance to sell through excess inventory and start the new fiscal year in a cleaner position.

“It just looks like they’re trying to push people to get into stores after the new year,” she said.

But for some, a more budget-sensitive consumer could be an opportunity.

On an earnings call last month, Walmart CEO Doug…