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What Strong Black Friday Retail Sales Mean for Holiday Spending

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Shoppers walk through the Twelve Oaks shopping center on November 24, 2023 in Novi, Michigan.

Emily Elconin | Getty Images

Retailers are applauding after shoppers spent big on gifts and decor days after gobbling up turkey and stuffing.

But these strong results don’t necessarily mean these companies will be wildly successful during their all-important holiday quarter.

Online spending increased nearly 8% year over year to $38 billion during the five-day period from Thanksgiving to Cyber ​​Monday, according to Adobe Analytics. A record 200.4 million shoppers visited retailers’ stores and websites during the same period, according to a survey by the National Retail Federation. And Ulta Beauty And Foot lockerShares of rose this week, after companies reported better-than-expected profits and a strong start to holiday spending on sneakers, makeup and more.

But some unique factors may have driven these early sales, including broader adoption of online shopping, deeper discount levels and cooler temperatures in many parts of the United States. This raises the question of whether consumers’ appetite to spend will continue throughout the critical retail season – or ease into a more pronounced lull between Black Friday and the final pre-Christmas rush.

Ulta is in one of the hottest categories for retail as beauty continues to defy lower discretionary spending trends. Yet even Ulta CEO Dave Kimbell was quick to point out this week during the company’s earnings call that retail’s biggest weeks are ahead.

He said Ulta and its beauty competitors would benefit from higher levels of promotion than a year ago because they cater to budget-conscious customers.

Read more retail news from CNBC

The NRF has also tempered expectations compared to recent years. The industry’s leading trade group expects 3% to 4% annual growth in holiday spending between November 1 and December 31. That’s about the average annual growth before the boom of the pandemic years.

On a call this week, NRF CEO Matt Shay said the season was on track to meet that estimate, even after buyers exceeded the trade group’s turnout expectations for the weekend of five days of Thanksgiving.

Here’s a look at three key factors that contributed to the Black Friday weekend:

Anastasia Krivenok | Instant | Getty Images

Shoppers flock online

Instead of rushing to the mall after Thanksgiving dinner or lining up outside stores for deals on Black Friday morning, more and more Americans are filling their shopping carts from their couches.

Online shopping still represents only a fraction of overall holiday spending, even after years of pandemic lockdowns, giving it plenty of room to grow. About 1 in 5 retail dollars is spent online, according to Adobe Analytics. According to the NRF, only about 30% of overall holiday sales occurred online, through apps, or in other locations that aren’t brick-and-mortar stores.

Consumers spent $109.3 billion online from November 1 to Cyber ​​Monday this year, according to Adobe Analytics. This represents an increase of 7.3% compared to the same period last year.

This is an even bigger jump from pre-pandemic 2019. Consumers spent $81.5 billion online between November 1 and Cyber ​​Monday of that year. This year’s period had a few extra days since Thanksgiving occurred later in 2019 than in 2023, but illustrates the greater adoption of e-commerce.

Adobe’s data covers more than 1 trillion visits to U.S. retail websites, 100 million unique items, and 18 product categories in total.

One of the reasons for this change? Some major retailers that attracted shoppers on Thanksgiving evening are now closed. The Thanksgiving closures of Walmart, Target, Best Buy and other retailers are one of the legacies of the pandemic.

Plus, in a year when Americans are more budget-conscious, online may be the best way to shop, said Vivek Pandya, principal analyst at Adobe Digital Insights. It’s easier to compare prices by opening multiple web browsers and apps rather than moving from store to store, he said.

“The focus is on price and value and the consumer has been very strategic,” he said.

It’s too early to tell whether the higher online shopping totals so far this season mean holiday shoppers will spend more overall year over year — or if more of their purchases will simply be transferred to websites and applications. Adobe doesn’t track in-store purchases, Pandya said.

Adobe predicts that online spending for the entire holiday season, November 1 to December 31, will reach $221.8 billion, which would represent a nearly 5% year-over-year increase. If the estimate turns out to be correct, that means shoppers still have just over half of their holiday spending online to spend.

The NRF said this week its survey found around half of consumers’ online and in-store Christmas purchases were remaining.

A customer visits the store during early morning Black Friday sales at Macy’s Herald Square on November 24, 2023 in New York, New York.

Kena Betancur | Getty Images

A thirst for good deals

The desire for bargains is an early and clear theme of the season.

After more than a year of paying higher prices for almost everything, including milk, gasoline and housing, American shoppers have shown that a compelling price drop is one of the best motivators .

Black Friday and Cyber ​​Monday have become synonymous with deep discounts, which may explain the massive participation of shoppers and spending online.

On Cyber ​​Monday, for example, consumers saw discounts as high as 31% on electronics, 27% on toys, 23% on clothing and 21% on furniture, according to Adobe.

These price drops in electronics, clothing and furniture were higher than those on Cyber ​​Monday a year ago. Toys, on the other hand, had lower discount levels than last Cyber ​​Monday.

Scott Wren, senior global markets strategist at Wells Fargo, said it was a mistake for investors to extrapolate that increased Black Friday weekend spending means the U.S. consumer is in good health . Instead, he described it as the “last hurray” before a recession that Wells Fargo predicts will occur in the first half of 2024.

He said higher credit card balances, higher borrowing costs and the risk that the U.S. Federal Reserve will continue to raise interest rates to combat inflation could cause a slowdown.

“People are almost exhausted, but (with) the holiday season, they’re ready to expand even more,” he said.

Reality may also hit us as consumers have to pay for their holiday purchases.

Americans are financing their purchases in new ways, including using credit and debit cards. Usage of Buy Now, Pay Later reached an all-time high on Cyber ​​Monday, according to Adobe. It contributed to $940 million in online spending, a nearly 43% year-over-year increase. Shoppers who used the checkout option also put more items in their cart, with the number of items purchased increasing 11% year-over-year.

Going into credit card debt this holiday season will also come with a higher price tag if consumers carry a balance from month to month due to higher interest rates.

Shoppers view clothing during Black Friday deals at Macy’s department store at Roosevelt Field shopping center in Garden City, New York, the United States, November 24, 2023.

Shannon Stapleton | Reuters

A timely cold snap

In many parts of the country, shoppers have had to postpone purchases of sweaters, hats, jackets and other cold-weather gear due to an unseasonably warm fall.

Still, the Black Friday weekend brought cooler temperatures to major cities like New York — the kind of cold snap retailers are looking for.

Over the past couple of months, companies like Levi Strauss and Macy’s have cited the challenge posed by warmer weather.

Macy’s CEO-elect Tony Spring told investors in a mid-November conference call that “the weather was a little warmer than we would have liked,” but that stores adapted with goods that could pass from one season to the next.

Levi CEO Chip Bergh said the unseasonably warm weather hurt sales of its jeans at stores including Walmart, JC Penney and Macy’s.

“It’s hard to sell jeans when it’s 110 degrees outside,” he said on a call with CNBC in October.

Colder weather over the Black Friday weekend laid the groundwork for increased sales, said Scott Bernhardt, president of Planalytics, a predictive demand and analytics company that tracks the influence of weather on customers. retail spending. A cold snap usually motivates spending because it puts shoppers in a holiday mood and helps their shopping list better match the seasonal products that retailers have on display in stores, he said.

Retailers may not be so lucky in the coming weeks, Bernhardt said.

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