The National Retail Federation is predicting holiday spending will increase 6 to 8 percent this year over 2021. An NRF survey indicates a record 196 million shoppers kicked off holiday shopping Thanksgiving weekend. That’s despite a 40-year high in inflation.
John Talbott, director of the Center for Education and Research in Retail at Indiana University’s Kelley School of Business, predicts a “bifurcated spending environment” this holiday season. Talbott said higher income households may be the driver behind the predicted overall increase. In an NRF survey, high income households said they plan to spend at least 20 percent more this year.
“For those of us that have more modest means -- inflation may be more of a factor,” Talbott said.
He doesn’t see any particular items running away with sales this year.
“You know it’s a really old reference,” he said “but we always ask ‘What's the Tickle Me Elmo this year?’ -- and of course, my students go into a blank stare because they have no idea what that means -- but I don't see any particular Tickle Me Elmo this year,” he said.
“But if there is that thing that you need to get -- buy it,” he said. “Because you're not going to save money on it later, you know, those things that are in demand are not going to go down in price.”
Clothing is typically a top seller, according to the NRF, followed closely by gift cards. If you’re going in for gift cards, Talbott advises buying them from major retailers, such as Best Buy or Target.
“You have the certainty that they're going to live up to it, that they're not going to go bankrupt before you redeem the card,” he said. “And then secondly, you give your gift recipient a really big level of choice”
Retailers are also big fans of gift cards because only about half of those bought are ever redeemed.
“And so they generate that revenue, and then they get to write off the liability that's created for it,” Talbott said. “If you think of gross margin dollars, gift cards, in some ways, are the highest margin items that they sell.”
Talbott recommends sending digital gift cards. They’re less likely to get lost or accidentally tossed.
“If somebody says ‘Hey, did you get my gift card?’ and you're on the receiving end, you can always go to your junk email and find it,” he said.
Talbott stressed that steering shoppers to major retailers for gift cards isn’t meant to disrespect small businesses. In fact, he’s a big fan of buying from local specialty stores. But when shopping small businesses, Talbott advises buying items in-store and skipping gift cards. Here’s the unfortunate retail reality:
“Anytime you're dealing with a smaller, less well capitalized entity, there's more of a default risk associated with that,” he said.
According to Talbott, the fourth quarter of the fiscal year (November, December and January for retail) is 45 percent of some smaller shops’ business. They may have had to take on debt to buy inventory so if they miss their holiday sales targets, they may still have the inventory but not enough money to pay for it.
Retail bankruptcies usually happen in January or February, Talbott said, when businesses find they don’t have the cash flow to go forward.
This means the wise holiday shopper should buy gift cards from a known source, and the wise recipient should use their gift card sooner rather than later.
Talbott offered a final, more philosophical word of advice about holiday shopping: don’t stress too much.
“The holiday shopping season is incredibly important for our economy, and a lot of jobs around the world depend on it being good,” he said. “But at the end of the day, what really matters is being with friends and family and having our health.”
