Christmas is right around the corner. Here's how inflation could affect holiday shopping.
Summer is just coming to a close, but here are some tips to keep your kids happy and get a jump on Christmas gifts.
- Back-to-school shopping may be over, but holiday shopping is just starting.
- Easier supply chains mean fewer out-of-stock items, but inflation means more low-priced options.
- Shortages will be concentrated in certain items. Consumers should snag those as soon as possible.
- Retailers are expecting game consoles to be in high demand this Christmas
Now that back-to-school shopping is about finished, retail analysts say it's time to begin thinking about holiday shopping to avoid disappointing kids.
And the head of Walmart, the nation's largest retailer, acknowledges that inflation will continue to influence the choices that families make.
Snarled supply chains left retailers and consumers contending with empty shelves last year. This year, supply chains have eased, and retailers have planned better, but certain items may still fall short of demand, some analysts warned.
Many items may be available but possibly in limited quantities, which means consumers should start peeking at holiday lists early to secure those items, analysts say. Items most likely to be affected are still ones that require a semiconductor chip due to the ongoing global chip shortage and those with higher price tags as retailers aim lower with consumers squeezed by inflation trade down.
What items are affected by shortages?
“Game consoles – retailers can’t get enough of them,” said Adam Davis, managing director at Wells Fargo Commercial Capital. "They’re getting less than what they can sell. It’s critical to get it sooner because there’s no guarantee on moving products.”
Nintendo, for example, said Switch sales slid 60% in the first quarter ended March 31, from the year-ago period and Switch Lite sales halved due to the chip shortage. The company said it expected the situation to improve in late summer and into autumn, but that may be too late for U.S. retailers that typically start receiving holiday inventory in September.
Lego hasn’t said this year there would be a shortage again, but Lego bricks are made of petroleum-based plastic that forced it to raise prices when oil prices surged, and the war in Ukraine affected supply chains.
Meanwhile, Hershey's set off worries last month when it said it may have trouble meeting Halloween and winter holiday candy demand due to difficulty securing ingredients.
How will inflation influence shopping?
Even though year-end spending generally makes up about a fifth of annual retail sales, big-box retailers like Walmart and Target may be skittish about ordering ample inventory this year, analysts say.
As inflation sits at a 40-year high, consumers quickly shifted their spending from goods and services and cut discretionary spending just as back-ordered inventory arrived, leaving retailers with overflowing inventory. To clear the inventory, they’ve had to heavily discount merchandise, hurting margins and forcing them to lower earnings expectations.
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And with inflation still running hot and consumers and the economy looking uncertain, retailers may “rationalize what they ordered because they don't want to get stuck with inventory after the holiday,” Steve Pasierb, president and chief executive at The Toy Association trade group, said. “I don’t want to say they’re conservative. I like to think they’re sensible, or not aggressive."
What should consumers expect on the shelves?
Shelves should be full but dominated by lower-priced options.
“We've got a strong position in opening price points across categories,” said Doug McMillon, Walmart CEO, on a conference call on Tuesday. “We expect inflation to continue to influence the choices that families make, and we're adjusting to that reality.”
Even so, the toy industry expects to do well.
Toy sales so far in the first half of the year have risen 2% even as other categories have slumped, Pasierb said. Inflation hasn’t hit toys as hard as other categories, with the average toy price only rising to $11.30 from $10 over the past three years, he said.
“People still want to get something for the kids,” Pasierb said. “They might buy one bigger ticket item and then a lot of smaller items around it.” Many toys like Hot Wheels and bouncy balls remain around an affordable $1 each, he noted.
What about waiting for Black Friday, Cyber Monday sales?
Unanimously, analysts said if it’s a must-have item, don’t wait.
“We talked to some retailers, and they said they can’t get enough of XYZ product,” Davis said. “So, if it’s on your kid’s Christmas list, don’t wait for a 10-15% discount.”
Besides, it’s likely you’ll get some sort of discount even if you shop early.
“Over the last few years, we’ve seen sales expand across the course of the entire shopping season,” Claire Tassin, Morning Consult retail & e-commerce analyst, said. Shoppers also can buy now and call in for price adjustments later if they see a lower price, she added.
Plus, retailers may offer incentives to push shoppers to buy early to save on shipping costs, Spencer Shute, senior consultant at Proxima, said. FedEx and the U.S. Postal Service have already announced holiday price hikes starting in October.
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What strategies should consumers use?
“It’s not as a bit of a rush as last year (in finding items before they’re out of stock), but still, don’t wait until the last minute,” Shute said.
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Here are some tips to help maximize your time and holiday budget this year:
- Have your kids write their wish lists early so you can get a peek at their must-have items and start buying those or check out the list of hottest toys this year for ideas. “If your kid has his heart set on one thing, just buy it,” Pasierb said. “Don’t count on it to be there three months from now. Buy the important stuff now and let everything else go.”
- Sign up for loyalty programs to earn points for merchandise or discounts or be the first to know about a sale or a product coming in stock.
- Set a budget and stick to it.
- Maximize shopping by using credit cards that offer points to use for other things or cash back. As inflation squeezes household budgets, “we’re seeing credit card use increase as people fill in the space with savings or debt,” Tassin said.
- Join the "re-commerce" trend, which focuses on sustainability. For example, you can often buy "vintage" handbags or even used golf clubs for half the price of new, Davis said.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at firstname.lastname@example.org and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.