Purdue Retailing researcher: Expect ‘solid’ holiday spending despite inflation

Despite 3.2% inflation over the past year, Rodney Runyan, professor of retailing for the Purdue University White Lodging-J.W. Marriott Jr. School of Hospitality and Tourism Management, expects still “solid” holiday spending, but some families may sacrifice a present or two for under the Christmas tree. File photo

Written by: Tim Brouk, tbrouk@purdue.edu

It’s another year removed from the COVID-19 pandemic and major global supply chain issues, and United States consumers are ready to spend for the holiday season despite inflation throughout 2023, according to Rodney Runyan, professor of retailing in the Purdue University White Lodging-J.W. Marriott, Jr. School of Hospitality and Tourism Management.

The U.S. Bureau of Labor Statistics recently reported a consumer price index increase of 3.2% from a year ago, but many consumers will move money around to ensure a festive holiday season.

“I think people may start out cautious, but in the end decide that holiday season is once a year and make their purchases without too much dissonance,” Runyan stated.

While some families may have one or two fewer presents under the Christmas tree, online and brick-and-mortar shops small and large, locally owned and national retail giants, should still have cash registers and PayPal accounts buzzing.

How has inflation affected holiday spending in the U.S.?

Inflation is still impacting consumers, although spending in the third quarter for big-ticket items like cars and trips was up quite a bit. I think most economists expect a solid holiday season for most retailers, as consumers seem to still have either spendable income or are willing to use credit to purchase goods.

But I do think two things will impact holiday gifting beyond the dollar figures.First, because goods cost more, people who spend the same or nearly the same as last year will buy fewer gifts while spending the same. Second, because supply chain issues have finally smoothed out, many retailers are able to have leaner inventories going into the season compared to the past few holiday seasons. This will reduce selection in some categories for shoppers, as retailers do not have the backstock they did before.

How much money will shoppers spend per household this year? Will people be more cautious?

Depends on who you ask, and what you ask them. The National Retail Federation (NRF) says shoppers will spend 3-4% more than they did in 2023; The Conference Board says around 7% more (or about $650) but that overall holiday spending will be down a couple of percentage points. If we take the NRF number, for example, that increase just about matches overall inflation so far this year.

What are some new strategies retail businesses have this year to get consumers to spend?

I think targeted social media and online advertising will continue to be a tactic used by companies, especially with current customer bases. That is, getting targeted messages out to existing and loyal customers will be as important as ever.

According to online reports, more people are still shopping in-store, and the rates are slightly higher with each year since 2021. Why is this?

I think there are three reasons driving this: One is still a post-pandemic hangover, in that people could (or did) not shop in-store as much as they wanted during that time period; second is an increase in the number of online retailers who now charge for returns, delivery or both; third is inflation has made more consumers a little more discerning in what they buy, perhaps preferring to see and feel a product before purchasing when three years ago there was less concern. This seeing and feeling part also connects to the charges for returns with online retailers, so buying things in physical stores solves all three “problems.”

“Shopping small” is still coveted by local governments and business owners. What can small businesses do to keep up with big box stores and Amazon in 2023? What are the benefits of shopping small this fall for the consumer?

When consulting with downtown business groups or individual small retailers, I always provide one piece of advice: Provide products and services that the big stores do not. Scott McClelland, former president of H-E-B stores used to say in a more colorful way, “Sell (stuff) the others don’t.” Small retailers are usually, by definition, local retailers and thus offer locational convenience. Small retailers should leverage local convenience, personalized and/or unique services, and products that others don’t sell.

The benefits for local consumers in shopping “small” are embedded in the advice I give to the business owners themselves: It is often more convenient, the service is usually better (or at least it should be), and the chance to buy differentiated merchandise is offered. However, there is a societal benefit from shopping locally, which includes the overall quality and character of the community itself. When we shop local, we support our neighbors in their entrepreneurial endeavors and very often help employ other neighbors.