Barbie dolls (R) go on sale ahead of Black Friday at a Walmart Supercenter on November 14, 2023 in Burbank, California.
Mario Tama | Getty Images News | Getty Images
Early Black Friday discounts were much higher in October than in previous years, indicating retailers are concerned that demand could be tepid during the crucial holiday shopping season.
Promotions across a range of categories, including apparel, appliances and computers, were up significantly last month compared to 2021 and 2022, data from Adobe Analytics shows. For example, the price of online clothing in October was 9% lower than at the start of the month, but in 2021 and 2022 it was only 2% and 5% lower respectively, the data shows.
Of the eight categories that are popular during the holidays that Adobe tracks, only electronics and toys saw fewer discounts last month than in previous years, according to the analysis.
Adobe’s data does not include promotions at physical retail locations, but does include more than a trillion visits to U.S. retail websites, 100 million SKUs, and 18 product categories in total, which Adobe says is more than any other technology company or research organization.
For years, so-called “holiday creep” has pushed Black Friday discounts to begin earlier than the day after Thanksgiving, as companies look to extend the shopping season and meet changing demands from consumers who want more time to shop for gifts. Although prices are already low, the promotions are expected to peak from Black Friday through Cyber Monday, Adobe said.
While consumer spending fell in October, according to the new CNBC/National Retail Federation Retail Monitor, deep discounts during the month boosted online spending, Adobe said.
Online sales grew nearly 6% to $76.8 billion compared to last year, fueled by deep discounts and an increase in the use of ‘buy now, pay later’, which allows customers to split orders into four payments, said Adobe. According to the NRF, about 30% of total holiday sales last year occurred online and other non-stores, compared to brick-and-mortar retail locations.
Data from research firm GlobalData supports Adobe’s findings.
Both the depth of discounts and the total number of items on sale in October were also higher than in the past four years, according to an analysis of U.S. retailers from GlobalData.
In October, discounts averaged 24.1% on clothing, home goods, electronics, toys and games, sporting goods and beauty products, compared to 16.7% off in 2019 and 12.9% in 2021, according to GlobalData. On average, 7.8% of all items were on sale at some point during the month, compared to just 4.9% in 2019 and 3.3% in 2021.
Overall, Adobe’s Digital Price Index shows that prices in October were lower than in previous years. Last month prices were more than 6% lower than last year. In October 2022, prices were only 0.7% lower than the year before and in October 2021, prices were 1.9% higher than the year before.
Bad times ahead?
The early and deep discounts, which are expected to reach record highs during the holiday season, are not necessarily a harbinger of tough economic times ahead. But the trend does provide insight into the state of an increasingly cautious consumer and the steps retailers are taking to boost demand and stay competitive against persistent inflation.
“It shows they’re worried about the holidays. They’re worried it won’t be super strong,” said professor Daniel Rubin, a consumer behavior expert at Peter J. Tobin College of St. John’s University. Company. “That’s kind of the impetus, right? That’s why they want to expand it. That’s why they feel like they need to offer deeper deals across a wider variety of product categories.”
The variations in the discounts from year to year reflect the nuances that have emerged during recent holiday periods, which have been difficult to predict due to the chaos resulting from the Covid pandemic.
In 2021, stimulus measures left consumers flush with cash and supply chains constricted, creating a classic case of high demand and low supply, driving prices up and promotions down. The following year, as both inventories and inflation had grown and consumers began to feel the effects of high prices, promotions increased.
This year, retailers are still trying to figure out the new calculation and may have “misread and overestimated” consumer demand for tangible goods, said professor Brett House, who teaches economics at Columbia Business School.
“Higher discounts on goods may reflect continued consumer interest in spending on services and experiences rather than tangibles as people continue to make up for missed opportunities during the pandemic-induced shutdowns,” House said of a trend that continued for much of the time. year.
It could also “reflect a desire by companies to reduce inventories and advance products in anticipation of what is expected to be slower growth and weaker consumer spending in 2024 than we have seen this year,” it added he added.
Addicted to discounts
So far, the holiday outlook from retailers reporting earnings in recent weeks is mixed. TJX told shareholders it expects a strong holiday season. Hole was a bit more cautious, saying it expects sales to be flat or slightly negative.
Walmart Finance chief John David Rainey told CNBC shoppers “rely heavily” on big promotions, and October’s trends made the company rethink how healthy consumers are.
Goalwhich entered the holidays bullishly this time last year, said this week that it was too early to get into the holidays, even as splashy Black Friday ads litter the website and stores.
During a call with investors, the company’s management team used the word “value” seventeen times and the words “affordable,” “affordability” or “affordable” seven times.
As deep discounts drive holiday spending, a trend that started to pick up last year, consumers become accustomed to promotions and some retailers may struggle to convince them to pay full price.
“There’s going to be a very long-term problem here,” Rubin said, “where retailers are now almost conditioning consumers to never pay full price, and so I think you might start to see even deeper discounts that are necessary to get people excited. Create that sense of urgency.”
He added: “I don’t know how you come back from this. If you offer offers all the time, consumers get used to them. They don’t expect to pay full price and as a result they won’t. pay full price and if you don’t offer that discount for them, your competitor probably will.”