CBRE Group, a commercial real estate services and investment firm, forecasts fourth-quarter holiday sales will increase by 3% this year, noting retailers generally have positioned themselves well for challenging marketplace conditions by improving operational efficiencies, putting better inventory controls in place and establishing more frugal reverse logistics procedures.

CBRE said its forecast for a 3% year-over-year, fourth-quarter sales gain at retail compares with a 7.5% gain in 2022 and a 14.6% surge in 2021. The real estate and investment company cited rising credit-card debt and higher interest rates as among the factors that are shaking consumer confidence.

CBRE stated consumers in the United States enter this holiday season with strengths and weaknesses, which makes for greater economic uncertainty. Wage growth has exceeded inflation for most of this year, the company noted, and the 3.8% unemployment rate as of September is well below the long-term average of 5.7%. However, the personal savings rate fell to 3.9% in August, less than half of the long-term average of 8.8%. Total credit card debt reached $1.03 trillion by the middle of 2023, up by 14% from a year ago, but the average debt service payment as a percentage of disposable income remained significantly below historical averages at less than 10%.

Other consumer spending challenges, including increased housing costs and the resumption of student loan payments, could begin to affect spending. Student debt totaled $1.57 trillion or 9% of total consumer debt as of the second quarter. Debt service on student loans could total $10.4 billion per month, or $31.3 billion per quarter, assuming a 20-year payment period and the 20-year average interest rate of 5.09%. In all, student loan payments could limit spending power by about 2% of the projected $1.5 trillion in total consumer spending for the fourth quarter and materially impact the retail industry.

Net absorption of available retail space increased in the third quarter from the second, lowering the overall availability rate to just 4.8%. The level is the lowest since CBRE began tracking the market in 2005, the company pointed out. Pop-up shops that tend to proliferate during the holiday shopping season have found it harder to secure space this year, especially in the strongest markets and trade areas.

Lower container volume at major U.S. ports year over year reflects lower demand for foreign-made products, which might indicate a lack of retailer confidence in demand, according to CBRE. However, since the pandemic, U.S. retailers have significantly increased their warehouse space to stockpile more inventory and avoid any potential supply chain disruptions, CBRE maintained, adding more on-shoring of manufacturing operations also has led to less need for imported goods.

More efficient reverse logistics operations, including the processing of returned items, have tempered the need for more warehouse space. Brick-and-mortar stores have taken on a larger reverse logistics role. More than half of respondents to CBRE’s 2022 Global Live-Work-Shop survey said they prefer returning online purchases in-store, compared with just under 20% who prefer returning items by mail, and that could generate more in-store foot traffic, as online returns have been increasing. Consumers returned a weekly average of 13.1% of online orders in the 2022 holiday shopping season versus 8.4% in 2021, according to CBRE, which cited eMarketer research.

Although revenues slipped from a year earlier, Target posted a significant gain in third-quarter profits and will tackle sales going forward, including efforts to drive holiday gains with sharp prices on gifts and promoting them conspicuously.

Net earnings for the quarter were $971 million, or $2.10 per diluted share, versus $712 million, or $1.54 per diluted share, in the year-prior period. Adjustments for one-time events did not affect the diluted share price in the quarter.

An analyst consensus estimate from Yahoo Finances called for earnings of $1.48 per diluted share and revenues of $25.24 billion.

Comparable sales slid 4.9% in the quarter, with declines in discretionary categories partially offset by continued growth in frequency categories, most notably in beauty, according to Target. Same-day services advanced more than 8%, led by more than 12% growth in drive-up.

Revenues were $25.4 billion and sales were $25 billion, versus $26.52 billion and $26.12 billion in the year-previous period, respectively, the company reported. Operating income was $1.32 billion versus $1.02 billion.

Target indicated inventory at quarter was 14% lower than at the same point in 2022, reflecting a 19% reduction in discretionary category inventory.

To deliver newness and value for consumers in the holiday season, Target reported the company is offering more than 10,000 new items for the holidays, with thousands of gifts under $25 and thousands of Target-exclusive items across multiple categories.

In a conference call, Brian Cornell, Target chair and CEO, emphasized the company’s earnings gains.

“We’ve seen a meaningful improvement in profitability compared with last year,” Cornell said. “Even beyond this year’s rapid progress, we believe we have a significant opportunity to grow both the top and bottom line in the years ahead. So, even as we remain cautious in our near-term outlook, we’re not standing still. We’re playing the long game, investing in our stores, our supply chain, our team, our digital capabilities and our assortment to provide the newness, value and convenience our guests want for the holiday season and beyond.”

Cornell said economic headwinds continue to hit target, and the decline in comps resulted from softer sales in discretionary categories, partially offset by gains in everyday needs. Store comp trends were a bit stronger than digital comps in the third quarter, Cornell added. Bottom-line growth was stronger than Target anticipated because of factors including better freight costs, favorable product mix, inventory management and work to improve efficiencies.

Target will focus on improving traffic and sales growth to provide more satisfactory overall performance, he said. However, consumers are waiting until the last minute to make purchases and buying fewer units across the industry, Cornell maintained. As such, Target is emphasizing sharp price points on end caps and marketing during the holiday season, as well as innovation and newness. He commended vendors for providing both. For its part, Target is revisiting employee training to ensure shopper satisfaction as the year ends and into the future.

Although macroeconomic factors have weighed on holiday sales prospects, National Retail Federation Chief Economist Jack Kleinhenz, as part of NRF’s Monthly Economic Review for November, stated that consumer spending momentum looks to chug along in the last two months of the year.

NRF expects record holiday season spending in 2023, defined as November 1 through December 31, and forecasts retail sales to advance between 3% and 4% over 2022 to between $957.3 billion and $966.6 billion. The growth rate is consistent with the average annual sales gain of 3.6% from 2010 to 2019, and the projected total sales, which focus on core retail by excluding automobile dealers, gasoline stations and restaurants, would top the record of $929.5 billion set last year.

“While there is significant uncertainty surrounding the measurement of how well the economy is performing, it continues to move forward and defy recession predictions, proving it to be more resilient than anticipated,” Kleinhenz said. “I expect the recent rhythm of spending will continue into the holiday season. Consumers will continue to spend on a range of items and experiences but at a slower pace. Households are starting the season in decent financial shape and are managing the constraints of their paychecks amid higher interest rates and higher monthly financial obligations as they seek to maintain their mode of living.”

Kleinhenz added, “The last few holiday shopping seasons have been filled with unmatched peculiarities for consumers and retailers alike.”.

In 2020, sales surged 9.1% year over year despite the challenges of COVID-19, and there was a significant move to shopping online as consumers in the United States stayed close to home. Rising demand overcame supply chain bottlenecks for a record growth rate of 12.7% in 2021. Holiday sales in 2022 rose 5.4% as savings banked during the pandemic provided a buffer against rising inflation and more consumers shopped in physical stores.

“This year, a whole new set of dynamics is in place,” Kleinhenz said. “The average household remains on relatively solid financial footing despite pressures from still-high inflation, stringent credit conditions and elevated interest rates. Recent revisions to government data indicate that consumers haven’t drawn down as much of their pandemic savings as believed earlier, and savings are still providing a buffer to support spending. The overall story for this holiday season is that it looks very good.”

Kleinhenz pointed out that “a disconnect between solid consumer spending and weak consumer confidence” has been evident through 2023, with shoppers spreading around more dollars despite worries about inflation, high-interest rates and political stress. The consumer sector has been “remarkably resilient” this year despite uneven spending, with growth rates rising at a brisk pace in the first quarter only to slow in the second and become stronger in the third. He noted that although consumers are likely to continue spending, observers expect some slowdown in the fourth quarter. Continued wage and job growth has fueled spending gains, Kleinhenz maintained, and job growth has “slowed but not tumbled,” with payrolls climbing by 150,000 positions in October and the three-month moving average at 204,000 despite downward revisions for August and September. Credit card use has been gaining, but households’ ability to pay their bills is in line with pre-pandemic levels.

Something of a shift in spending from goods to services could affect holiday retail sales as consumers who stayed at home during the pandemic do more traveling, entertainment and restaurant dining. But Kleinhenz said consumers often prioritize holiday spending and may even reduce purchases earlier in the year to safeguard their ability to spend during the celebratory season.

The Primerica Household Budget Index reading for September 2023 indicated that the average purchasing power for middle-income households was 99.3%, up from 97.4% in August.

In September 2022, the index was 89.3%. The latest version of the monthly index demonstrates that middle-income families with incomes from $30,000 to $130,000 are enjoying improvements in spending power, the business services firm stated, yet still recovering from the cumulative impact of high inflation.

Primerica set the index baseline in January 2019. Between 2014 and 2020, the HBI analysis showed steady purchasing power gains for middle-income families, with a November 2020 peak of 102.8% that put households in a stronger financial position to pay their monthly bills because wage growth outpaced the cost of everyday goods. Then, increasing inflation caused the index to fall as low as 85.4% in June 2022.

“Wage growth outpaced the increased cost of necessities in September 2023, improving the purchasing power of middle-income households to 99.3%,” said Glenn Williams, Primerica CEO. “Although there were modest improvements in spending power this September, the cumulative effect of high inflation for several months continues to strain middle-income budgets and create stress in families.”

Amy Crews Cutts, Ph.D., CBE, an economic consultant to Primerica, added, “Over the past 18 months, families have had to dig into savings or go into debt to cover the cost of everyday necessity items. The big bump that many middle-income households got from federal pandemic-related Economic Impact Payments is gone and with it, the cushion to weather higher costs for food and utilities heading into winter. We got lucky last year with a mild winter and forecasters are expecting a similar weather pattern for this winter season although, home heating fuel is predicted to be 8% higher over the next few months and could offset this positive budget impact.”

The National Retail Federation said today that retail sales continued to push forward in September even as consumers faced continuing economic pressures.

NRF’s calculation of retail sales – based on Census Bureau figures but excluding automobile dealer, gasoline station and restaurant results to focus on core retail – had September up 0.5% seasonally adjusted from August and 2.2% unadjusted year over year. In August, sales were up 0.2% month over month and 3.6% year over year.

On a three-month moving average, NRF’s numbers were up 3.1% unadjusted year-over-year as of September and 3.7% for the first nine months of the year.

As to sales by channel, according to NRF:

• General merchandise stores were up 0.4% month over month seasonally adjusted and 3% unadjusted year over year.
• Furniture and home furnishings stores were unchanged month over month seasonally adjusted but down 6.5% unadjusted year over year.
• Building materials and garden supply stores were down 0.2% month over month seasonally adjusted and 6.5% unadjusted year over year.
• Health and personal care stores were up 0.8% month over month seasonally adjusted and 7.3% unadjusted year over year.
• Electronics and appliance stores were down 0.8% month over month seasonally adjusted and 2.5% unadjusted year over year.
• Grocery and beverage stores were up 0.4% month over month seasonally adjusted and 2.1% unadjusted year over year.
• Sporting goods stores were unchanged month over month seasonally adjusted but down 1.6% unadjusted year over year.
• Clothing and clothing accessory stores were down 0.8% month over month seasonally adjusted but up 0.8% unadjusted year over year.
• Online and other non-store sales were up 1.1% month over month seasonally adjusted and 6.2% unadjusted year over year.

“September retail sales show that consumers have retained the ability and willingness to spend despite accumulating economic headwinds from higher interest rates and slowing growth,” NRF president and CEO Matthew Shay said in announcing the sales results. “As we gear up for the holiday season, we expect moderate growth to continue as consumers focus on value and household priorities. Retailers have been hard at work getting holiday inventories in place to provide consumers with great products, competitive prices and convenience at every opportunity.”

NRF chief economist Jack Kleinhenz added, “The consumer is still healthy, and today’s report shows households are forging ahead with plenty of buying power despite persistent inflation, rising interest rates and geopolitical conflicts. Firm payroll growth over the past few months has likely helped spending across retail sectors. However, much of the rise was due to car sales, gasoline prices and food services. When you exclude those categories and look at core retail as measured by NRF, the pace of year-over-year growth is slowing.”

Import cargo volume at the nation’s major container ports has hit its expected peak for the year and looks to gradually slow heading into the holiday season, according to the Global Port Tracker report released today by the National Retail Federation and Hackett Associates.

With consumers wary of the economic outlook for the United States, with inflation and high-interest rates weighing in, discretionary spending growth is slowing, which has been causing retailers to reign in their importing, at least to an extent, Hackett Associates Founder Ben Hackett reported. Consumer spending grew 1.8% year over year in the second quarter rather than the 2.3% originally estimated, and NRF said last month that retail sales for the year could come in at the low end of its forecast of 4%-6% growth versus 2022.

Inbound volume at U.S. ports covered by Global Port Tracker was forecast to reach 2 million Twenty-Foot Equivalent Units in August and stay at that level through October. Instead, ports handled 1.96 million TEU — one 20-foot container or equivalent — in August, which is the latest month for which final numbers are available. The volume gained 2.3% from July and was the busiest month this year so far this year, but it is still down 13.5% year over year. Ports have not reported September numbers yet, but Global Port Tracker projected the month at 1.94 million TEU, down 4.3% year over year. The October forecast for 1.94 million TEU is down 3.1% year over year.

However, November’s forecast is for 1.91 million TEU, a 7.5% increase from the month last year, which would be the first year-over-year gain since June 2022. December is forecast at 1.88 million TEU, up 8.9% year over year.

Including forecasts, the numbers would bring 2023 to 22.1 million TEU, down 13.5% from the year earlier. Imports for 2022 totaled 25.5 million TEU, down 1.2% from the 25.8 million TEU annual record set in 2021.

The January 2024 forecast is level with December at 1.88 million TEU, up 4.2% year over year. February, historically the slowest month of the year because of Lunar New Year factory shutdowns in Asia, is likely to reach 1.74 million TEU, up 12.7% year over year.

“Cargo volumes will still be strong the rest of the year, but not as high as we expected a month ago,” said Jonathan Gold, NRF vice president for supply chain and customs policy. “Retailers stocked up early this year as a safeguard against supply chain labor issues and are well-situated to meet consumer demand. Shoppers are spending more than they did last year, but the rate of growth we’ve seen the past couple of years has slowed and retailers are working to strike the right balance of supply and demand.”

Hackett maintained, “We are already seeing this in the operational decisions carriers are making. They have slowed down their ships in an attempt to cut capacity without having to take vessels out of service as new, larger ones ordered when demand was higher are delivered. Even so, ships are not sailing fully loaded, and freight rates are declining as a result. That’s a further indication that no cargo growth from current levels is expected on the near-term horizon. Perhaps 2024 will be better.”

Global Port Tracker, produced for NRF by Hackett Associates, provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast; and Houston on the Gulf Coast.

The economy in the United States has continued growing despite labor disputes across the country, uncertainty about funding government operations created by Congress and the ongoing challenges of inflation and high interest rates, National Retail Federation Chief Economist Jack Kleinhenz stated in NRF’s Monthly Economic Review. 

Kleinhenz noted that the final 2.1% increase in gross domestic product reported by the Bureau of Economic Analysis for the second quarter came even after revisions that reflected less consumer spending on both goods and services than originally estimated. Consumer spending grew, but only 1.8% year over year adjusted for inflation rather than the original estimate of 2.3% as spending on services such as household utilities and vehicle maintenance was revised downward along with spending on goods like home furnishings, appliances and clothing.

High inflation and interest rates are casting a shadow over popular financial sentiment and consumer confidence in September declined for the second month consecutively, according to the NRF report. However, the low consumer confidence readings did not translate into weaker spending, which rose 5.8% year over year in August, tracking a 7.3% increase in disposable income, Kleinhenz pointed out. The increase occurred despite the Personal Consumption Expenditures Price Index, the Fed’s preferred measure of inflation, gaining 0.4% in August from July and 3.5% year over year.

Incoming data suggests that the just-ended third quarter remained largely on par with the second and that 2023 could still see a soft landing rather than a recession, Kleinhenz maintained, as the U.S. Federal Reserve tries to restrain job growth without causing an increase in the unemployment rate. Nonfarm payrolls added 187,000 jobs in August, up from 157,000 in July but below the average monthly gain of 271,000 over the past year. The unemployment rate grew by 0.3 percentage points to 3.8% in August as more people looked for jobs.

After falling for three consecutive months through July, job openings rose to 9.6 million in August from 8.9 million in the month earlier but were far below the 10.2 million a year before. The hiring rate ticked up slightly from 5.82 million in July to 5.86 million but again was lower than the 6.5 million figure a year prior. Separation numbers, including layoffs, were unchanged in August and have come down after a small surge earlier in the year. Unemployment insurance claims remain at historical lows, Kleinhenz indicated, and signal no pickup in layoffs, which would be a signal of a pending recession.

“While the data has shown continued economic growth, weaker growth as mirrored in the GDP revisions suggests that higher interest rates and tighter lending standards are working more thoroughly than previously recognized,” Kleinhenz said. “Since higher interest rates typically slow down the economy, the Federal Reserve is most likely pleased to see that higher rates are having an impact on employment, economic output and corporate results.”

The Conference Board Consumer Confidence Index in September slipped to 103, down from an upwardly revised 108.7 in August.

However, the Present Situation index gained as the Expectation Index declined, according to the Conference Board.

The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, rose slightly to 147.1 from 146.7 a month earlier. In Conference Board index assessments, 100 is the dividing line between positive and negative assessment of business conditions, The Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, declined to 73.7 after falling to 83.3 in August. Expectations fell back below 80, the level that historically signals a recession within the next year but at which state the Expectation Index has been for much of the past year. Consumer worries about an impending recession also ticked back up.

Regarding the Present Situation index, 20.9% of consumers responding to a Conference Board survey said business conditions were good, down from 21.5% in August; 16.4% said they were bad, down from 17.3%. At the same time, 40.9% of consumers said jobs were plentiful, up from 39.9% in August; 13.6% of consumers said jobs were hard to get, up from 13.2%.

In terms of the Expectation, looking out six months, 14.1% of consumers said they expect business conditions to improve, down from 17.5% in August; 18.4% expect business conditions to worsen, up from 17.3%. Then, 15.5% of consumers expect more jobs to be available, down from 17.5% in August; 18.9% anticipate fewer jobs, up from 18%.

Consumer anticipation about their income prospects six months out was more pessimistic in September. Consumers’ assessment of income prospects declined, with 16.3% of consumers expecting their incomes to increase, down from 18.7% in August, and 14.4% expecting their incomes to decline, up from 11.9%. Consumer expectation of a recession increased by a little more than a point from 68% in August.

“Consumer confidence fell again in September 2023, marking two consecutive months of decline,” said Dana Peterson, Conference Board chief economist. “September’s disappointing headline number reflected another decline in the Expectations Index, as the Present Situation Index was little changed. Write-in responses showed that consumers continued to be preoccupied with rising prices in general, and for groceries and gasoline in particular. Consumers also expressed concerns about the political situation and higher interest rates. The decline in consumer confidence was evident across all age groups, and notably among consumers with household incomes of $50,000 or more.”

According to a forecast released by AlixPartners, the global consulting firm, holiday season sales in the United States should grow from 3% to 6% year over year.

In its annual AlixPartners Holiday Outlook Survey of more than 1,000 consumers in the United States, 26% of respondents said they plan on spending less this holiday season than they did during the 2022 period, with spending reductions more significant among lower-income households. The survey indicated that 38% of households earning incomes less than $45,000 a year said they plan to spend less.

The survey suggested that consumers would cut back by trading down, as 33% of survey respondents said they would shop for more affordable brands and retailer private labels, and give fewer gifts, including self-gifts, as 24% of respondents said they would reduce purchasing presents for themselves. Also, 38% of consumers said they would moderate holiday spending by purchasing half or more of holiday gifts from goods on sale.

Home furnishings, jewelry and accessories are likely categories to experience the effects of consumer cost-cutting.

More than 70% of survey respondents said they would research products they intend to purchase online by reading product reviews and doing price checks across retailers, as well as by researching gift ideas through influencers, news sources and blogs.

As artificial intelligence gets more general notice, the survey results demonstrated that consumers are most favorable to AI enhancements that improve product recommendations, provide personalized offers and streamline service with virtual assistance.

In announcing the survey results, Bryan Eshelman, Americas leader of the AlixPartners retail practice, said, “Higher-income consumers may not be in the best of times, but we see them sustaining their spending through the holidays. This year’s retail winners will be those that are ‘value-right.’ By that we mean those retailers that offer value in categories where consumers are targeting cutbacks.”

Adam Pressman, a partner and managing director at AlixPartners, added that “it is crucial to reach and influence customers via their preferred digital and physical channels during their sales journey, making the most out of every consumer interaction. While this may seem daunting to many retailers, they need to identify and prioritize key use cases and sales journeys and keep in mind that when exposed to the right content and products from a brand about one-third of consumers, according to our survey, will immediately convert. Retailers will also have more time this year to fine-tune promotional strategies. Only 38% of consumers in our survey said they intend to start their holiday shopping before Halloween this year, down from 46% in our 2022 survey and 53% in our 2021 survey. But while retailers are making progress with personalization efforts, there is much work left to be done: 65% of consumers said they see little-to-no improvement in companies being able to provide relevant product recommendations.”

Despite a slowing economy, retail sales rose in August as parents shopped for school supplies and other goods even as inflation continued and interest rates remained high, according to the National Retail Federation.

In citing figures from the United States Census Bureau, NRF stated that retail sales in August were up 0.6% from July and 2.5% year over year as compared to a gain of 0.5% month over month and 2.6% year over year in July.

NRF’s calculation of retail sales excludes automobile dealers, gasoline stations and restaurants to focus on core retail. In August, retail sales gained 0.1% seasonally adjusted from July and 3.3% unadjusted year over year as NRF calculates them. In July, core retail sales advanced 0.7% month over month and 3.3% year over year.

NRF’s retail sales were up 3.2% unadjusted year over year on a three-month moving average as of August and up 3.8% for the first eight months of 2023.

By channel, the results were:

• General merchandise stores up 0.3% month over month seasonally adjusted and 3% unadjusted year over year
• Furniture and home furnishings stores down 1% month over month seasonally adjusted and 7.6% unadjusted year over year.
• Building materials and garden supply stores up 0.1% month over month seasonally adjusted but down 3.8% unadjusted year over year
• Health and personal care stores up 0.5% month over month seasonally adjusted and 7.8% unadjusted year over year
• Grocery and beverage stores up 0.4% month over month seasonally adjusted and 2.8% unadjusted year over year
• Electronics and appliance stores up 0.7% month over month seasonally adjusted but down 1.6% unadjusted year over year
• Sporting goods stores down 1.6% month over month seasonally adjusted and 1.6% unadjusted year over year
• Clothing and clothing accessory stores up 0.9% month over month seasonally adjusted and 3.6% unadjusted year over year
• Online and other non-store sales unchanged month over month seasonally adjusted but up 7.6% unadjusted year over year

“August retail sales show that consumers remain steadfast in the face of continued inflation and higher interest rates,” NRF president and CEO Matthew Shay said in announcing the sales numbers. “Consumers are focused on household priorities, as evident by spending this back-to-school season. Entering the fall, we expect moderate growth to continue despite uncertainties like the direction of inflation and interest rates as well as a potential government shutdown.”

NRF chief economist Jack Kleinhenz added, “NRF’s numbers show the pace of retail growth cooled from July but that even as they continue to be selective and price sensitive. Households have the capacity to spend, but momentum is slowing, in part because savings built up during the pandemic are running lower and credit costs are rising. Consumer spending growth has slowed, but there is little hint of any sudden collapse.”