Retail Sales: What Small Businesses Need to Know for Success in 2023
As 2022 comes to a close, retail numbers have started to paint a picture of how the economy is faring two years after the rollercoaster that was 2021. Here’s a high-level summary of economic conditions that have affected retail sales in the past year — and what to look forward to in the year to come. Undoubtedly the biggest conversation this year has been inflation, but recent figures show that consumers are rallying to avoid a serious economic downturn, ahead of all estimates.
INFLATION VS CONSUMER SPENDING
What does inflation mean for small retailers? As prices rise but the value of the dollar remains the same, consumers and businesses alike have been fretting about the widening gap between purchasing power and paycheck size. For small businesses who rely on customers buying online or at brick and mortar locations, goods and services sold come at a higher price as profits are tempered by increases in interest rates and manufacturing costs. According to new data, the fourth quarter is looking good as consumers continue to push the economy into better territory. Does this mean that more people are out buying? Not necessarily. It’s important to keep in mind that profits don’t always have a direct correlation to the number of shoppers. According to Bloomberg, “Even though some price pressures are easing, retailers are still seeing the impact of inflation in earnings. Home Depot Inc.’s profit exceeded expectations last quarter, but was driven by higher prices rather than more transactions.” That is to say, increases in price (which have a direct correlation to inflation) are sometimes used to offset a downturn in shopper numbers. However, this doesn’t necessarily mean that prospects are bleak. On the contrary. Looking at the numbers from October, the retail sales for 2022 are up 8.9% from last year. Coming off of the pandemic, this boost is promising, but doesn’t immediately take into account the role inflation has had. But even so, there’s still good news! Even adjusted for inflation, the total sales are still up 1.5% versus last year. And while that might not seem like a lot, positive numbers are always a good sign.
WANTS VS NEEDS
As the holiday season ramps up, shoppers descend on deals for Black Friday, Small Business Saturday, and Cyber Monday. However, instead of seeing a sharp uptick in luxury goods or gift items typically bought during these events, the estimates point toward a shift from people buying things that they want to buying items that they need. There was a slight decrease in the purchase of electronics and hobby items (like musical instruments and sporting goods), while sales related to motor vehicles and groceries pushed upward. According to Reuters, “The National Retail Federation is forecasting holiday sales will grow between 6% and 8% this year. While that would be a step down from the 13.5% notched in 2021, it would be well above the 4.9% average over the past 10 years.” Last year’s high numbers were most likely a result of people pushing to get back to normal after a year of social distancing, so the lower figures in 2022 shouldn’t come as a shock.
Another factor impacting this year’s numbers is the slow increase of interest rates by the Fed as the government attempts to course correct to avert a recession. As prices climb and people continue to recover from the losses accrued during the COVID-19 pandemic, debt burdens have become a major issue for consumers as interest rates continue to rise. “It’s not the level of debt that matters for consumers, it’s the monthly payments needed to finance the debt,” said Ryan Sweet, chief economist at Oxford Economics in West Chester, Pennsylvania, adding, “Debt-service and financial obligation ratios are still among the lowest since the 1980s, a testament to the strength of household finances, in aggregate.” With an increased focus on getting out of debt, shoppers prioritize things that they need in their day-to-day over extras, conveniences, and fun.
GOODS VS SERVICES
So what does all this mean for small businesses as we head into 2023? People are prioritizing services and experiences over goods, a trend that has been on the rise as the coronavirus retreats. “We are just in the early stages of seeing the rotation of consumer spending from goods to services. As time goes on, you are going to see more of that. Food services are quite strong. Travel is picking up, airfares and hotel occupancy,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics. Food service establishments like bars and restaurants are seeing an increase in customers at a rate that exceeds that of retail stores, but shopping in person has also made a comeback as people look to support their small businesses and get out of the house. After being cooped up at home for so long, going out shopping is an experience in itself. Community organizations and town councils have been quick to embrace the idea of getting people out to stores by staging events and themed nights or highlighting customer loyalty benefits and sales that encourage in-person visits. By getting shoppers out of their houses and into stores, businesses can stimulate a more personal connection that helps to humanize the shopping experience.
While inflation continues to be a talking point in regard to retail sales, the Department of Commerce report shows that there are still gains being made across the country. Consumers right now are taking care of their priorities before splurging on additional goods, but with few exceptions, numbers are on the rise. As the end of the year comes into view, small businesses should remember that customers are key, and creating viable alternatives to big box stores through a more personal interaction will often win the day.
READY TO HELP
While inflation and the rollercoaster ride of 2021-2022 have affected retailers in different ways over the past months, SnowShoe.io has been a consistent factor in providing easy-to-use loyalty and rewards solutions that help retailers understand customer behavior, reach out to customers and bring your loyal customers back to your store, over and over again. SnowShoe’s Spark Loyalty has proven itself now to over 1000 retailers nationwide, and we remain a consistent partner to retailers of all sizes. Contact our team to find out more.