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November 10, 2022

 
  • It looks set to be a successful holiday season for certain retailers in the U.S., with J.P. Morgan forecasting 5% growth year-over-year in personal consumption expenditures (PCE) for apparel and footwear.

 

  • The picture looks bleaker in the U.K., where e-commerce sales (as forecast by IMRG) are expected to decline -5% year-over-year.

 

  • Shoppers in China are willing and able to spend, with 72% of consumers surveyed by J.P. Morgan intending to increase or maintain their spending during the Singles’ Day shopping holiday.

 

Soaring inflation may be curtailing consumer spending, but shoppers are determined not to let it dampen their holiday cheer. This year, consumers still intend to tick items off their shopping list — but many will also look for ways to make their budgets stretch further. From the U.S. to the U.K. and China, here are several trends to look out for this holiday shopping season. 

 

What’s the Holiday Shopping Outlook in the U.S.?

Despite the recessionary landscape, many U.S. shoppers have yet to tighten their purse strings. In fact, Chase card spending grew 8% on a three-year CAGR basis in the third quarter of 2022, led by an increase in discretionary (i.e. non-food) categories — so retailers can expect fairly robust sales this holiday season. 

 

U.S. consumers keep spending despite inflation

Line chart showing Chase consumer card spending has largely held steady since January 2022.

Source: J.P. Morgan (Chase consumer card spending tracker, seven-day average of total spending, data through October 30, 2022). Please click here for Chase Card data disclaimers and methodology. 

Chase consumer card spending has largely held steady since January 2022, clocking in at 7.5% over 2019 levels — a 1.6% change from the pre-COVID trend — as of October 2022. 

 

 

However, with inflation continuing to run rampant, value and convenience will be front of mind for U.S. shoppers this year. As such, dollar stores and off-price retailers like Dollar General and TJ Maxx stand to emerge as winners. “Our research points to a sequential uptick in higher-income cohorts trading down to the off-price channel in the last 30 to 45 days. In addition, off-price retailers’ core $40K-and-under household income customer is holding up better to date than in prior economic downturns, due to gainful employment and continued wage growth,” noted Matthew Boss, Head of Department Stores and Specialty Softlines at J.P. Morgan.

It also looks set to be another successful holiday season for apparel and footwear brands. Boss forecasts a 5% growth year-over-year in personal consumption expenditures on apparel and footwear — and this is on top of 18% growth in 2021. In particular, athleisure brands are primed to gain market share, driven by the growing interest in health and wellness as well as the casualization of office wear post-pandemic.

In addition, colder weather will be a catalyst for the retail industry. “Weather Trends International’s forecast for a cooler start to the fourth quarter of 2022 will boost demand for full-price ‘wear now’ seasonal apparel, and early snowfall and seasonal winter temperatures will benefit gift-giving categories into Black Friday,” said Boss. “There are opportunities for off-price retailers given their stronger year-over-year branded inventory assortments, as well as apparel brands that have a strong winterwear selection with full-price selling and gifting potential.” 

 

The weak consumer backdrop creates the potential for elevated discounting.

Georgina Johanan, Head of European General Retail Equity Research, J.P. Morgan

How Will Cash-Strapped U.K. Shoppers Spend?

Consumer confidence in the U.K. has plummeted as shoppers grapple with the worst cost-of-living crisis in a generation. This will likely weigh on Black Friday, with U.K. e-commerce association IMRG predicting sales will decline -5% year-over-year.

As a result, cost-conscious shoppers can look forward to more promotional deals this year, especially as retailers seek to shift excess inventory accumulated as a result of slowing consumer demand. In October 2022, Adidas issued a profit warning highlighting “significant” inventory build-up due to lower demand in Western markets and stated that it expects to run more promotions for the remainder of the year. In the same vein, online retailer Zalando noted that “in a market with higher inventory levels, in the event that demand drops off, we will have to expect higher promotional intensity.”

“We are mindful that consumer sensitivity could increase as price rises worsen in magnitude, particularly amid a weakening macro environment. The weak consumer backdrop thus creates the potential for elevated discounting,” said Georgina Johanan, Head of European General Retail Equity Research at J.P. Morgan. 

 

Singles’ Day and Beyond: What’s the Retail Outlook in China?

A J.P. Morgan China consumer survey has suggested a resilient consumption outlook over the next six to 12 months, which looks better than feared. Of the 1,400 people surveyed, the majority said they aimed to maintain or increase their spending into the Singles’ Day shopping holiday and over the following months. Singles’ Day, or Double 11, was originally a time to celebrate single people. Now, it’s the biggest shopping holiday in the world, with retailers including Alibaba, JD, Taobao and Tmall offering various promotions and discounts.

  • 72% of respondents intended to increase or maintain spending during the Singles’ Day shopping holiday.
  • 76% expected to increase or maintain their spending over the next six to 12 months.

“The results of our survey demonstrate that the market may be too bearish about the consumption outlook in China,” said Andre Chang, who covers the China e-commerce space for J.P. Morgan. “Respondents from Tier-1/New Tier-1 cities were even more positive about their consumption outlook, with 35% saying they expected to increase expenditure. We’ve started to see increasing demand for discretionary categories, with 60% of respondents wanting to buy more apparel/footwear, followed by 56% for food and beverages.”

Unsurprisingly, the biggest deterrent to increased expenditure is concern around wages, followed by investment return. However, the overall message from the survey is that China’s consumers are willing and able to spend — both throughout the holiday season and beyond. 

 

Survey question: where will you consider increasing your spending?

Sixty percent of consumers expected to spend more on apparel, shoes and bags, followed by 56% for food and beverages, 43% for sportswear, 35% for electronics, 29% for fast-moving consumer goods, 28% for home appliances and cosmetics, 10% for luxury goods and 3% for others.

 

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