Global 2023 Holiday Retail Outlook: No Festive Cheer For Some Retailers

Around the world, the holiday season—the months of November and December—is marked by major shopping events, including U.S. Thanksgiving, Hanukkah, Christmas, and New Year, and is generally the most important time of the year for retailers. This commentary covers our expectations of consumer behaviour this holiday season, and the expected impact on the broader retail sector globally.
Key highlights:
-- In the UK, U.S., EU, and OECD countries, consumer confidence—an indicator of future developments in household consumption and spending—has remained below 100, indicating consumers’ pessimistic attitude toward future developments in the economy.
-- In tandem with consumer confidence, many retailers in their most recent quarterly earnings have observed that shoppers, pressured by persistent but easing inflation and high interest rates, continue to curb their discretionary spending, choosing instead to spend on essentials.
-- This holiday season we believe that consumers will (1) continue to curb their overall spending, particularly for discretionary products; (2) trade down to more affordable product offerings; (3) show greater preference for private labels; (4) search widely for promotional discounts; and (5) prioritize online over in-store purchases.
-- We anticipate that this evolving consumer behaviour will negatively affect some retailers more than others.

“Amid the current macroeconomic environment, we expect that the changes in consumer behaviour will increasingly favour grocers and discount retailers. General retailers, on the other hand, could be impacted differently depending on where they are on the discretionary to non-discretionary spectrum, and their product assortment across different pricing tiers. Finally, we expect the operating performance and free cash flow of some more discretionary retailers to be pressured,” said Aarti Magan, Vice President of Diversified Industries at DBRS Morningstar.