Vacation spending rose, defying fears of a decline

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Despite persistent inflation, Americans increased their spending this holiday season, early data shows. This comes as a big relief to retailers who had spent much of the year fearing that the economy would soon weaken and consumer spending would fall.

Retail sales rose 3.1 percent from Nov. 1 to Dec. 24 compared with the same period a year earlier, according to data Mastercard released Tuesday. The credit card company's figures are not adjusted for inflation.

Spending increased in many categories, with restaurants seeing one of the largest increases, up 7.8 percent. Apparel rose 2.4 percent and groceries also posted gains.

The holiday sales figures, boosted by a healthy labor market and wage increases, suggest the economy remains strong. The Federal Reserve's campaign to curb high inflation by raising interest rates in recent years has slowed the economy, but many economists believe a so-called soft landing is within reach.

“What we're seeing during this holiday season is very consistent with how we think about the economy, which is an economy that is still very much expanding,” said Michelle Meyer, chief economist at Mastercard.

Strong job growth is allowing people to spend more. And although consumer prices have increased a lot in the last two years, salaries have increased faster overall.

“We are now entering the period, and we are seeing it to some extent during the holiday season, where consumers have built up real purchasing power,” Ms. Meyer said.

Still, spending on categories like electronics and jewelry declined this season. And the rate of spending growth has moderated since recent years. In 2022, retail sales during the holiday season increased 5.4 percent, according to the National Retail Federation. In 2021, they pink 12.7 percent, the largest percentage increase in at least 20 years. Online sales growth has also slowed in 2023, increasing 6.3 percent compared to 10.6 percent from 2021 to 2022, according to Mastercard.

While the economy is strong overall, Americans are becoming more conscious about how they spend, and that discretion shaped the shopping season.

Some retailers had expressed concerns In recent months, buyers seemed gloomy and fearful about the economy. Walmart and Target noted that shoppers appeared to be waiting for deals before purchasing, a change from recent years when they spent more freely.

“The caution that they have taken about their spending and where they are spending has been really noticeable in the second half of the year, where many customers have been affected, especially low- and middle-income people,” said Jessica Ramirez, retail research analyst at Jane Hali & Associates.

In a return to some of the trends that were prevalent before the pandemic, many retailers and brands offered promotions. Discounts ranged from 30 to 50 percent, Ramírez said. But the discounts were more targeted this year than last because fewer companies were saddled with excess inventory.

Categories that have faced a drop in sales this year, such as electronics, home furnishings and toys, saw some of the biggest discounts before Christmas. Those products had enjoyed a boom in sales during the pandemic.

Alexan Weir, a 30-year-old mother from Orlando, Florida, said she was pleased to find deals on toys when shopping for Christmas gifts for her daughters this month. Among the items she purchased at Target were the Asha doll, based on the main character from the Disney movie “Wish”; an Elsa doll from “Frozen”; and a Minnie Mouse kitchen set. With discounts, the items together cost about half their full list price of $200.

“As a parent, all you're trying to do is make your kids happy. You’re not trying to go broke,” Ms Weir said. “I spent a little more this year, but at least with the few sales I received, I can say I wasn't heartbroken by what I was spending.”

Barbie, whose breakout year was boosted by the hit movie, sold particularly well in a year when there was no hit toy. The doll and her many accessories have sold well at Mary Arnold Toys, a family-owned store on Manhattan's Upper East Side. And overall sales at the store have been steady, said Ezra Ishayik, who has run the store for 40 years.

“It looks like we are on par with last year: no better, no worse,” Ishayik said. “The economy seems good to me. It's decent, it's okay, people are buying. “We are at the higher end of the industry, so we don’t see any downward trend.”

But the last few months have been more challenging for Modi Toys.

Modi, an online retailer, sells plush toys and books based on Hindu culture and typically sees two sales spikes in the fourth quarter: one in the run-up to Diwali and another around Christmas.

Normally, the company generates more than $100,000 in sales in the month before Diwali, which fell on November 12, but this year sales fell into the five-figure range. This was partly because the retailer launched a product too early and then had to offer deep discounts to stimulate sales, something retailers try to avoid with new products.

That's when we knew we were really going to have a challenging Christmas season,” said Avani Modi Sarkar, founder of the company.

As he wraps up the year and looks ahead to 2024, Sarkar is testing new digital marketing strategies, including sending personalized email newsletters to customers and closely tracking discounts.

“We're just trying to close the gap for ourselves and not end the year with as big a gap as we would have had,” he said. “I know what we're capable of and I'm trying to not only get back to that level, but surpass it.”

A clear sign that shoppers are being more careful with what they spend comes from discount retailers. In November, Burlington, an off-price retailer and the parent company of Marshalls and TJ Maxx, said it saw a 6 percent increase in comparable-store sales.

Online retailer ThriftBooks said its sales are also up this holiday season, up more than 20 percent in November and more than 24 percent this month compared to a year ago, according to Ken Goldstein, the company's chief executive.

“This is unprecedented,” Goldstein said. “This is incredible in terms of the volume we are doing. Because we are a valuable product, I think a lot of people are putting their money to work.”



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