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Inflation puts US Black Friday crowds in a bargain-hunting mood

By Anna Mutoh

Financial Times: Bargain-hunting Americans are expected to turn out in record numbers for the start of the US holiday season, but their fatigue at higher prices is making retailers cautious and putting strain on the nation’s economic engine.

Black Friday — the day after Thanksgiving — traditionally kicks off America’s biggest annual shopping spree with retailers touting alluring discounts. This year, some are planning steeper markdowns to draw inflation-weary consumers into stores.

The National Retail Federation expects 182mn people to shop between Thanksgiving and Cyber Monday. That would be 16mn more people than last year and the most since the NRF began tracking the data in 2017.

Their average outlay over those days will be 13 per cent higher than last year at $567 per person, Deloitte estimates. But spending for the entire season is only set to keep pace with inflation: S&P Global Market Intelligence sees holiday sales growing 3.3 per cent, below the 3.9 per cent pre-pandemic average and the higher rates seen in more recent years.

Despite inflation cooling in October, “cost fatigue — the perception that the cost of everything is higher than pre-pandemic” remains, said Gregory Daco, EY’s chief economist in a report. That is dampening shoppers’ desire to spend.

Consumers have surprised economists with their resilience this year, as their spending defied inflation, soaring interest rates, and the resumption of student loan repayments. But the October jobs report showed a softening in labour market trends, and a November poll from the University of Michigan showed consumer sentiment at a six-month low.

The “arsenal of excess savings” households built up during the pandemic is also starting to deplete, Jason Pride, chief of investment strategy and research at Glenmede Trust, noted in a report.

Retailers’ third-quarter earnings reports showed signs of the warier mood. Home Depot and Lowe’s both pointed to a drop in spending on large home-improvement projects, Kohl’s missed sales estimates as spending on non-essentials declined, while Best Buy said demand had been “even more uneven and difficult to predict”.

Walmart, the country’s biggest retailer by sales, went as far as to say it “may be managing through a period of deflation” in the coming months.

Nearly 80 per cent of consumers are looking to “trade down” for holiday shopping this year, swapping planned purchases for cheaper alternatives or forgoing them altogether, a McKinsey study found. The desire to trade down has risen five percentage points from July 2022, even though that marked the moment when inflation hit a 40-year-high at 9.1 per cent.

Retailers have responded by offering much steeper discounts in some categories, according to an Adobe Analytics assessment of ecommerce pricing. Average peak discounts for apparel sold online are up from 19 per cent to 25 per cent, it found, while markdowns on televisions are up from 10 per cent to 24 per cent >>>