Retailers, flush with inventory and eager for customers, are set to offer some deep discounts this year as Black Friday approaches.
The paradigm has almost entirely shifted from Black Friday of 2021. Last year, retailers were struggling to keep products on shelves because of historic supply chain disruptions that were sending ripples throughout the world economy.
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HOLIDAY TROUBLE: INFLATION AND RECESSION FEARS DING SEASONAL HIRING
Additionally, because of that scarcity and consumers being flush with savings, demand to purchase those goods was soaring, meaning that stores didn’t need to mark down items as much as in other seasons.
Now, though, a glut of inventory is causing retailers to work overtime in order to offload their products. In addition to the excess inventory, inflation is eating into consumers’ paychecks and making it harder for them to splurge on Christmas gifts and other holiday items, so stores are desperate to offer discounts and lure customers in.
“Last year, about one-third of consumers said that they’re finding what they’re looking for in stores, and that has doubled to about two-thirds now,” Mark Mathews, the National Retail Federation’s vice president of research development and industry analysis, told the Washington Examiner.
“With high inventories, retailers have to clear shelve space and make room for stuff that’s still arriving onshore, which means that they have discounts,” he added, noting that the deepening Black Friday discounts are a positive development for consumers after the last two years. “I think consumers are going to go out there and be pleasantly surprised by what they see in terms of the amount of sales and the discounts.”
Inflation has hit consumers hard. Inflation as measured by the consumer price index clocked in at 7.7% in the 12 months ending in October, a decline from the month before but a number that is still far higher than the Federal Reserve’s preferred level.
Average real earnings, or how much people are able to take to the bank when inflation is included in the equation, have been declining since early last year. Median weekly real earnings have fallen nearly 4% since the end of 2020.
Put simply, the decline in average real earnings means consumers have less money to buy things over the Black Friday weekend.
Companies are hoping that the deeper discounts this year will convince consumers, particularly those who are being forced to skimp on nonessential purchases, to come into stores and help clear out their inventories.
“We do expect the higher discounting and promotional activities kind of given the evolving market conditions,” David Bergman, Under Armour’s finance chief, said earlier this month, according to the Wall Street Journal.
And retailers aren’t just advertising deep deals to sell off the featured products — they also hope to have customers shop around for other items while in the store. This November is very different from 2020 and 2021, which both featured concerns about the coronavirus. Now, businesses are setting their sights on a Black Friday that looks more like the time before the pandemic took hold and pushed people into more online shopping.
“They’re going to not just be picking up the things that they intended to. I think once they see the sales, they’re going to see other stuff, and it’s going to be hard to turn down some of the deals they’re going to see out there,” Mathews said.
This year also featured an earlier start to the holiday shopping season as stores, wanting to cut their inventory and fearing an economic downturn, began trying to bring in customers earlier than usual.
In 2011, just over half of consumers said they had started their shopping by early November, according to a survey compiled by NRF and Prosper Insights and Analytics. By last year, that number had ballooned to 61%.
Still, with inflation high, there are growing concerns that the holiday shopping season could be a tough one for some companies.
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This week, Target rattled the markets when it announced that its third-quarter profit fell by more than 50% as it dealt with inflation and clearing through its unwanted inventory. The company warned that it could be a sign that this holiday season will fall short of expectations for retailers.
“As we look ahead, we expect the challenging environment to linger beyond the holiday season and into 2023,” Chief Financial Officer Michael Fiddelke said during a call with reporters.
