As inflation, high energy prices and other economic factors weigh on consumer sentiment, U.S. e-commerce retailers are preparing for slower online sales growth during the holiday season and into the new year.
While major retailers like Amazon.com Inc. and Walmart Inc. benefited from a strong uptick in online sales during the pandemic, they are all forecasting a weaker fourth quarter. Amazon reported lackluster third-quarter earnings and warned of weak holiday sales. Walmart reported stronger-than-expected sales in the third quarter but said it expects adjusted EPS to decrease up to 5% in the fourth quarter. Target Corp. lowered its top- and bottom-line expectations for the fourth quarter.
The retailers all cited inflation as the reason. According to 451 Research's "Voice of the Customer: Macroeconomic Outlook, Consumer Spending (Population Representative), Holiday Spending Preview 2022," nearly 84% of respondents who decreased their holiday spending plans from a year ago cited inflation as the most important factor. Roughly 47% cited energy prices, while only 24% cited the availability of products.
Higher prices are clearly having a "suppressing effect" on consumers, who are spending "more on less" overall, Michael Nocerino, an analyst with 451 Research, said during a recent episode of the MediaTalk podcast.
"We're seeing holiday spending kind of returning to a lower level than we saw last year," Nocerino said. "Last year, there was a big spike in pent-up demand and the so-called revenge spending. ... We are seeing some of that fall back down to kind of the levels we saw pre-pandemic."
Most retailers are looking for ways to spur demand with increased promotional activity and discounts, said Arun Sundaram, an analyst with CFRA Research.
The companies are in a position to do so given that they have built up an excess supply of discretionary products like apparel after consumers drastically pulled back on spending on that category when gas prices spiked earlier this year.
"They are having to try to unload that [inventory] through heavy discounts and promotions," Sundaram said. "They are just trying to get these items off the shelves and make room for the items that are selling."
In 451's survey, discretionary items topped the list of categories respondents said they would be cutting back on the next 90 days compared to the previous 90 days, with 65% of respondents planning to reduce spending in the category. This was followed by restaurants at almost 30% and travel/vacation at 23.3%.
The companies are also pulling back on capital investments and cutting fixed costs to improve their bottom line. Amazon, for example, is spending $10 billion less on transportation and fulfillment investments this year. "That should bode well for the bottom line, probably not this year, but we should start to see that flow into their bottom line next year," Sundaram said.
Still, online retailers stand to benefit from the continued shift to internet shopping. More than 40% of 451's survey respondents said they would spend about the same amount of money online during the holidays compared to a year ago, while 17.3% said they would spend somewhat more online and 14% said they would spend significantly more, according to the 451 survey.
"We haven't lost some of that e-commerce demand; the e-commerce players should be much stronger today than if the pandemic never happened," Sundaram said.
For brick-and-mortar stores, they stand to benefit from promotional activity, Sundaram said.
"You tend to find sometimes more deals when you are walking through the aisles," the analyst said. "Some stores are almost like a treasure-hunt experience."
451 Research is a unit of S&P Global Market Intelligence.