The Holiday Season, Inflation, and the Economy

Holiday Season

In a typical year, any form of holiday would be an exciting time for retailers and food and drink businesses. Whether it’s Christmas, the end of Ramadan, or Diwali, these holidays incite people to shop for gifts and indulge in celebratory meals and drinks. As a result, the economy is typically booming during times of festivity; however, the unique circumstances of recent years have meant that retailers and food and drink establishments have been struggling all year round. 

2020 saw the world being shaken by the global pandemic, forcing these establishments to close their doors, furlough their staff, and refrain from making profits. Finally, we emerged from the other side of the pandemic, but we fell straight into a spiral of supply chain issues. Since then, we’re currently in the midst of a cost-of-living crisis, leaving people unable to shop, eat, and drink to the extent they did in previous years.  

Retail Holiday Shopping

During November and December, shoppers across the USA anticipate the arrival of Christmas. From this, these months can actually account for as much as a quarter of annual sales in specialty retailers and department stores. In order to keep up with the demand, retailers order their seasonal merchandise many months in advance, leaving many retailers overspending as people aren’t willing to spend with abandon amid the current financial circumstances.

During the pandemic, the largest retailers were able to keep afloat with online shopping orders being higher than they ever have been. What’s more, with the money that people were saving by being restricted to their homes, they were happy to spend a little more on presents. Consequently, inventory for these retailers was low, resulting in fewer discounts.

holiday shopping

This year, we’re likely to see the opposite effect: as people are forced to spend extortionate amounts on everyday goods and services, their holiday shopping decisions have shifted. In fact, as many as one in five holiday shoppers will spend less this season due to a changing economic situation. From this, retailers are forced to adopt new habits in order to encourage purchases; this means refining their call to action and offering more discounts. Despite this, discounts chip away at the profit margins for these businesses, leading to a negative impact on the economy. 

Selling in a Broken Economy

Unfortunately, any business that sells things is set to suffer this coming holiday season, with inflation rates reaching an all time high. Quite simply, the shelves are filled with items that shoppers no longer want, and this lack of turnover will ultimately result in many companies closing their doors. 

In order to cut costs, the biggest companies are freezing hiring and laying off large chunks of their employees. For the remainder of the year, Amazon is no longer hiring corporate individuals for its retail business while Peloton is conducting its fourth round of job cuts in which 12 percent of its workforce is being made redundant. Meanwhile, FedEx is closing its stores and freezing hiring, while Walmart will be recruiting fewer seasonal workers and Gap revokes 500 corporate positions. 

What Will 2023 Look Like?

It would be nice to say that the only way is up from here, but it’s set to get worse before it gets better. Retailers are prepared for a disappointing holiday season, influencing them to reassess their business strategies, restructure their companies, and ultimately lay off more staff in the upcoming year.

The entire world is attempting to reset, and retailers are no exception. Foot traffic in retail environments still hasn’t been restored to pre-pandemic levels, and it’s looking unlikely that it will return to this extent. To this day, foot traffic in brick-and-mortar stores is down by as much as 8.8 percent, even though the restrictions of the pandemic are well and truly behind us. 

During the pandemic, though, the lack of footfall was made up for by an increase in online sales; however, this isn’t the case for the upcoming holiday season. As a result, we can expect to see a more promotional market this holiday season that leads into 2023 in an attempt to entice shoppers to spend. Essentially, the economic situation is set to be unpredictable for some time.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.