Inflation-weary shoppers to see more holiday sales, discounts in 2022

Grocery and energy prices have spiked, and credit card interest rates are climbing, but shoppers can expect some relief as they start holiday shopping.

Retailers, desperate to coax inflation-fatigued consumers to spend, are expected to beef up promotions as they struggle to get rid of already-marked-down excess inventory.

“This will be the year of the perpetual deal for Christmas,” said Marshal Cohen, chief industry advisor for the NPD Group, a market research firm.

In some gift categories, merchandise could be marked down by more than 20% on retailers’ websites, according to Adobe Analytics, which tracks online sales. Computers, electronics and toys are all expected to hit the deepest discounting levels since Adobe started tracking figures in 2017.

The abundance of deals is a sharp departure from a year ago. Last holiday season, shoppers started buying gifts early to avoid out-of-stocks and shipping delays. Concerns about not getting hot items meant consumers were willing to pay up.

This year, though, retailers have an abundance of merchandise. Shoppers are more reluctant to spend as they pay more for food, housing, health care and more as inflation hovers around a four-decade high. People are also spending more on travel and experiences after two-plus years of Covid restrictions.

Even with the bigger discounts, industry-watchers expect a muted holiday season because of households’ stretched budgets. Consulting firm Bain & Co. forecasts growth of as much as 7.5% from last holiday season, but when adjusted for inflation, that is only 1% to 3%. Consulting firm Alix Partners projects a 4% to 7% increase in sales year-over-year — but that is a decline when factoring in the current year-over-year inflation rate of 8.2%.

“It’s food, it’s medical care, it’s housing and shelter costs. It’s essential services such as veterinary care, and child care,” said Leo Feler, chief economist for market researcher Numerator. “All of these things come first before consumers buy holiday gifts.”

Plus, customers may not even want some of the items that retailers are putting on sale. Computers, the category that’s expected to have the highest level of discounting during the holiday season, according to Adobe, has seen cooling demand. HP, Dell and Lenovo have all reported a decline in shipments of personal computers.

The return of steep discounting will be a tough pill to swallow for companies. It is pressuring retailers’ profit margins, as they juggle higher costs. Already, Walmart, Target and Best Buy have cut their profit outlooks as the retailers navigate a more promotional environment. Walmart leaders have said even higher-income households are trading down to buy cheaper groceries, raising concerns that they may hesitate to splurge on gifts, decor and other holiday items.

As shoppers lounged at the pool and went…