Retailers Turn to Deep Discounts to Boost Holiday Shopping Demand Amid Cautious Consumers
In an effort to stimulate consumer spending during the upcoming holiday season, retailers are relying heavily on deep discounts. Early Black Friday deals in October were significantly higher compared to previous years, indicating retailers’ concerns over tepid demand. Data from Adobe Analytics reveals that promotions across various categories, including apparel, appliances, and computers, were much more extensive last month than in 2021 and 2022.
While consumer spending declined in October, online sales experienced a boost thanks to the enticing discounts offered. Online sales grew by nearly 6% to $76.8 billion compared to the previous year, driven by significant markdowns and an increase in the use of buy now, pay later services.
Retailers are eager to prolong the shopping season and accommodate consumers’ desire for more time to purchase gifts. Consequently, Black Friday discounts are expected to peak on Cyber Monday, with retailers seeking to remain competitive amid persistent inflation.
Although the surge in early and substantial discounts might suggest tough economic times ahead, experts indicate that it primarily reflects the cautious mindset of consumers and retailers’ efforts to generate demand. According to Professor Daniel Rubin, an expert in consumer behavior, retailers are concerned that the holiday season may not be as robust as anticipated, leading them to offer deeper deals across a broader range of product categories.
The fluctuation in discounting patterns each year mirrors the unpredictability of recent holiday seasons due to the effects of the COVID-19 pandemic. In 2021, stimulus funds and disrupted supply chains resulted in high demand, low supply, rising prices, and fewer promotions. The following year, promotions increased as inventories grew and consumers felt the impact of elevated prices.
This year, retailers are trying to navigate the new dynamics and might have overprojected consumer demand for tangible goods. Professor Brett House, an economics professor, suggests that higher discounts on goods could reflect consumers’ continued preference for spending on services and experiences, compensating for missed opportunities during pandemic-induced lockdowns.
The holiday outlook from retailers reporting earnings in recent weeks has been mixed. Some retailers, like TJX, anticipate a strong holiday season, while others, like Gap, express caution and expect flat or slightly negative sales. The retail industry remains uncertain about the direction of consumer behavior.
If deep discounting becomes the norm for holiday shopping, retailers may face challenges in convincing consumers to pay full price. This reliance on constant deals could condition consumers to never expect to pay the original price, posing a long-term problem for retailers. It is possible that even more substantial discounts will be necessary to create a sense of urgency and consumer excitement.
As the holiday shopping season approaches, retailers are keenly aware of the cautious nature of consumers. Deep discounting is seen as a strategic approach to drive demand and remain competitive in the face of economic uncertainties. Ultimately, retailers hope that their efforts will lead to a successful holiday season, despite the challenges posed by shifting consumer preferences and persistent inflation.
