Listen: MediaTalk | Season 2 | Ep. 40: Retail holiday spending outlook remains mildly merry

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence's tech, media, and telecom news team. Welcome to MediaTalk, a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape. 2024 is winding to a close. We're approaching Thanksgiving and Black Friday. So today we're going to discuss the prospects and dynamics that will shape holiday spending this year. I'm joined by two analysts from 451 Research, which is also part of S&P Global Market Intelligence. Mike Nocerino works on 451's Voice of the Customer surveys, while Zach Ciampa is on 451's Customer Experience and Commerce team. Mike, thanks for being here.

Mike Nocerino: Glad to be here. Thanks for having me.

Reynolds: Zach, how are you doing?

Zach Ciampa: I'm good. How are you?

Reynolds: Also, in the MediaTalk house today is Market Intelligence senior reporter Brian Scheid, who covers financial markets, monetary policy, and US macroeconomics. Brian, how goes it?

Brian Scheid: Great. Great. Thanks for having me. I really appreciate it.

Reynolds: 451 Research recently published a report of interest to many in the retail community. Mike, can you give us some of the background behind this report?

Nocerino: Sure. We do a quarterly macroeconomic survey that looks at general consumer spending trends, and during the fourth quarter of every year, we do a focused module on holiday spending to get a look at whether things are going to be bright or a little sad. We're happy to report this year that it's looking like consumers have a little bit more pep in their step, and things have the potential to be a little bit more cheerful than last year. We're seeing consumers, for the most part, standing pat, which is good considering some of the inflation and other issues we've seen throughout the last few years. To see consumer spending stay steady and even improve a little bit during a very important time of the year, like holiday spending, could bode well for retailers this year.

Reynolds: Brian, you've been looking at the Conference Board's and University of Michigan's consumer surveys. What's your sense of consumer confidence these days?

Scheid: Thanks. So, the Conference Board's Consumer Confidence Index increased in October. I'm not going to bog down this with all the details, but we're looking at numbers that are a lot better than during the pandemic, but lower than what we were seeing pre-pandemic. The big takeaway, I think, from this index is consumer confidence is basically staying in a relatively tight range that it's been in for about two years. So, the consumer has been resilient in spite of relatively high interest rates, the threats of a looming recession, and a lot of uncertainty. But obviously, it could be better. Resilient doesn't exactly mean good. One data point from the Conference Board is that the proportion of consumers anticipating a recession over the next 12 months has dropped to its lowest point since July when the Conference Board first started polling this question. Now, the University of Michigan has a somewhat similar set of data, the Index of Consumer Sentiment and the Index of Consumer Expectations. Both of these indexes dipped slightly from September to October, but they've risen pretty substantially from a year ago. At the same time, last week we saw the latest government data that showed that these advanced retail sales hit almost $719 billion in October. That's up about 0.4% from a month earlier, and that took place even with two devastating hurricanes. So, we're still seeing the sort of data that supports all of the thinking that there is a resilient consumer. American households look poised to spend heading into the holiday season. I think that's the main takeaway, but we are seeing some cracks. We can touch on this later, but there's a lot of speculation, and there's a lot of data and statements to back this up. The Fed may not cut rates as much as many expected just a month ago. Wage growth could be slowing, the decline in inflation could be stalling, and debt looks to be rising. The New York Fed just put out a third-quarter report on US household debt that showed that the percentage of credit card debt now 90 days or more delinquent — that's like the seriously delinquent accounts — is at the highest level since 2012. Serious delinquency of auto and home loans is also rising. So, we're seeing some cracks. Just summing up, the American consumer remains steady, but there are troubles on the horizon, and we will have to see what happens next.

Reynolds: That's kind of a mixed bag there.

Scheid: Right.

Reynolds: Zach, what are we thinking about e-commerce this holiday season? Are we going to see people turning to that more, or is increased spending just moving in that direction from the in-store experience?

Ciampa: It's been interesting the past couple of years because I think in 2020, everybody was expecting e-commerce to become the big main thing when it came to holiday shopping. But for the most part, we've been looking at this longitudinally in our research over the course of, I believe, four years now. We've done our holiday Q4 survey in particular; we look at FinTech and the holiday experience. For the most part, online shopping still is the majority. It's about a 60-40 ratio, and that's held true for the past couple of years. Yeah, it's looking like in stores, per the usual, depends on the person, but there's also a good healthy mix of people doing both.

Reynolds: All right let's talk about holiday spending across income groups. Mike, those with more money, are they going to spend? If not, maybe as Billy Idol would say, "more, more, more," but they're going to spend more.

Nocerino: Yes. One good thing when we get below the top-line data is looking at some of the demographics. We're also happy to report that we're seeing improved spending sentiment among all income groups. Whether they're high income, middle income, or low income, they're all showing that they are in favor of spending more this year compared to last year. So that's a great sign because we have many instances where we might see some top-line numbers improve, but it might be fueled by the higher income spending more, and they're able to offset the lower income spending less. That's a trend we see very often in tight economic environments like what we've been in the last few years. So, it's good to see that across all income groups, folks are able to find the room within their household budgets to maybe keep spending a little bit. You can have some holiday cheer this year.

Reynolds: Good. That's good to hear. I'll mention two bad words here, which Brian touched on before: inflation and debt. Mike, what's your breakdown in terms of how much is that weighing on the minds of consumers as they get ready and they're making up their holiday spending lists?

Nocerino: So, the one good thing that we have tracked across our surveys recently is a slow and steady decline in the fear over inflation. Consumers seem to have been able to adjust slowly to a new normal incrementally, and there's not quite as much sticker shock because consumers are going out to the stores now, and they're seeing higher prices still, but they're expecting it a little bit more. They can plan a little bit more for it than they were able to when inflation was much higher in previous years. Similar with the debt obligations we're seeing, even though to Brian's point, consumer data, especially credit card debt, keeps going up, it seems that consumers are able to compensate for it a little bit better. It's not as much of a fear when it comes to a reason for them to stop spending. It also helps that, along with inflation, energy prices in a lot of instances have gone down as well. So, it's not that those things don't still exist; it's not that they aren't still a major part of the economic story, but consumers have seemed to adjust to them, at least in terms of their psychology as it relates to their ability to find money to spend, as necessary.

Reynolds: Maybe this is an age-old question because it's only been 10, 20 years, but Brian, your sensibility about Americans' connections to e-commerce versus in-store purchases this year. Zach's already weighed in. What do you think?

Scheid: If we look at the latest census data, which is going to be updated actually this week, there was $1.8 trillion in retail sales in the US in the second quarter. About $292 billion of that, so about 16%, was all online. So, if we throw out the second quarter of 2020, when the pandemic was keeping us all in our houses, that's the highest percentage ever. Like I said, we're getting the third-quarter data this week, and I think the expectation is that's going to keep going up. I don't know. I'm not sure that if there's any factor anyone sees at the moment that could keep that e-commerce percentage from climbing higher. I think if you're going at what we've been seeing, where it's building, maybe one-fifth of all retail sales being online within a few years, I'm not sure what would move people more to brick-and-mortar. I think the percentage is going to keep climbing.

Reynolds: Mike, is there any sensibility you have for what kind of purchases are made online or via e-commerce vis-a-vis going out to the store and bringing it home in your car or on the subway or what have you?

Nocerino: One interesting thing, and we saw this happen over the last couple of years, is consumers are looking to use holiday sales to buy more than just gifts. It's been an interesting phenomenon. This might have been happening forever, but as far as the data that we have available to us, this has been a very intriguing phenomenon basically since the pandemic of consumers taking advantage of sales to buy groceries, apparel, consumer electronics, even using discounts at restaurants during the holidays. It mixes in with their holiday spending. And that's also one of the reasons I think we're seeing the increased sentiment towards spending during the holiday season is that folks expect to be able to go out and not just pick up gifts to have things to put under the Christmas tree or what have you. What they're able to go out and have experiences and also stock up on some necessities for their houses. And that is also one of the things where I think we see this interesting balance between online and in-store shopping is that if folks are going to stock up on stuff like groceries, apparel, and going out to restaurants, that all is technically, for the most part, in-store shopping, right? So, I think that helps keep that percentage high. Plus, just the experience. Zach can probably talk more about this also, but we see some interesting differences in the experience that people are looking for when they're shopping online or in-store. And those experiences that they're looking for in some instances, they like the online experience; in some instances, they like the in-store experience. So, I think it also depends a lot on what they're buying for where they're buying it from.

Reynolds: All right, Mike, you've done part of my job here and set Zach up. So, can we talk a little bit, Zach? You guys have done some research here too. Again, what are some of the thought processes behind people favoring doing things online as opposed to going out into the stores?

Ciampa: There is a good part about retail shopping being a very tangible experience. A lot of folks do like it. We try to compare and contrast in-store and online against each other from the senses of ignoring price in the actual catalog offerings because obviously if lower prices are the big factor, everybody's going to select that. But we surveyed consumers about a lot of different things, and in stores, we see checking inventory before going into the actual store as being the biggest thing that they want. Largely. But then we also talk about things like more omni-channel experiences, which we'll get into in a second because it gets really interesting when you compare and contrast it with the online things. The difference in the top three between in-stores and online: you have check inventory for in-stores, you have UGC, which is user-generated content, ratings, reviews, etc., for the online experience. But largely the two and the three for both are the same. And that is more integrated experiences. So omni-channel, like being able to buy online and pick up in stores or have something shipped to your house and return it in stores. That's number two. And number three is flexible payment options. We're talking about contactless in stores, buy now, pay later online. It's really interesting to see over the course of the past couple of years how there is that omni-channel convergence and experience asks because people really want their experiences to be integrated largely. And that's something that we're tracking next year too in 2025, more of that integrated experience and how the online and the retail experience can talk to each other.

Reynolds: Yeah. It makes a lot of sense, right? Because you want to make sure you can get what you want to buy, and you also want to have the flexibility to pay for it in different ways, depending on your situation at the moment or how you scout out your spending for the entire year. Really coming together more. And again, not for nothing, if I go to Kohl's, there's an Amazon section down there where I can pick up my stuff or return it. That's becoming more and more commonplace, I would assume.

Ciampa: Exactly.

Reynolds: But you also think about it from the standpoint of being a consumer too. You want the brands that you spend your dollars with to know who you are, and you want that consistent experience across the online shopping journey and in the retail journey, right? Because if you spend a thousand dollars over the course of a year with a retailer, but it's only online and you go into the stores, you still want the same level of loyalty. You want them to know who you are, what you've bought in the past, what you might like in the future. So really integrating it from a data perspective and a customer profile perspective, that's really important to people too. They want to feel recognized when it comes to that brand loyalty. All those sort of elements feed into this one thing. And it's a blend between buy online, pick up at stores, and also, "Oh, this brand knows who I am and what I like."

Reynolds: Speaking of a brand knowing, I think some of your research spoke to personalized search in the sense that I buy A and B, so maybe they should recommend C and D. Is that more of an AI thing that we're only going to see more of going forward, Zach?

Ciampa: Yeah, generative AI is definitely changing the game a little bit. It's what we call product discovery, largely. But if you think about the experience of you shopping online at, say, Amazon or on Lululemon's website, you're going to be able to see a lot more complex query handling. So, if I want to search for something in particular that says, "Oh, I'm looking for a black T-shirt in size medium, but my proportions are this, or I have broad shoulders, what's the best fit?" You'll have more robust search engines that are able to handle those rather than just spit you out the generic answers. It'll start to be a little bit more bespoke. And so, it's going to get really interesting in the next couple of years, given the launch of generative AI, because retailers are really working to integrate that into their experience. And you're already seeing the same thing with the review summaries, etc., to tell people what they need to know about the products, but you're going to get a lot more depth when it comes to search. And as somebody who's a shopaholic anyway, I'm really excited for that personally, but I know it'll help a lot of other people too.

Reynolds: I gotcha. All right. Your research, Zach, goes across a lot of demos, and it's a real treasure trove of data from what I've been able to see. So, anything that surprised you in the way of people going more for something or backing away from something that might have been in their game plan going back a few years?

Ciampa: We've really seen stability when it comes to our results over the past couple of longitudinal years. So, there isn't anything that's necessarily a big surprise, but going back to what we were talking about earlier, where it goes to the omni-channel experience and the flexible payment options, it's really interesting to see the convergence of the features. It's nice to see the retail, the in-store experience asks to be the same because that's painting the picture of what we can expect in the future as well. So, it's nice to see the rise of user-generated content. There's a lot more focus on the creator economy too. People are looking to influencers, their friends, their family, and other creators to get informed product decisions. They're using a lot of social media to discover items. We're seeing a lot of that. So that's something to pay attention to over the next couple of years. But largely there are no massive surprises, which I think sometimes is nice.

Reynolds: Okay. All right. Getting to the end here, fellas. We're in countdown mode until Jan. 20 and the start of Donald Trump's second term in office. Does a change in administration to a man whose campaign traded on an improved economy affect this holiday selling season, Brian, or do we have to wait until next year for "Trumponomics," for lack of a better word, to have an impact?

Scheid: Yeah, I'm going to be a little annoying and just say that I really have no idea, and I don't think anyone else does either. I think we're weighing what a Trump presidency means for consumer spending and the overall US economy. We just don't know at the moment, but there's a lot of uncertainty. The big questions are: does Trump go forward with all the tariffs against China and other trading partners that he's threatened to do? There's a potential for skyrocketing prices there, and potential plummeting demand. What do mass deportations look like if they happen? That could be devastating to the labor market. We could see job openings spike, wages go up, inflation climb again. Then what does that mean for the Federal Reserve? If inflation rises, Fed officials may need to reverse policy course and start hiking again. We just got through one of the most aggressive monetary policy tightening cycles in Fed history. What do more hikes and more tightening mean for consumer confidence? I think the days of near-zero rates are over, and we may not see them again in our lifetimes. But how long are we going to be looking at mortgage rates above 7% or higher, auto loan rates, higher credit card rates? I'm not sure we can say with any confidence which way we're going here.

Reynolds: Okay. All right. We'll check back next year and see what the first year in office or for the second term might have wrought. Anyway, here's something that doesn't change year to year: lots of people watch football on Thanksgiving. The Detroit Lions, maybe the best team in the league, open up the schedule on Thanksgiving against number three market and NFC rival Chicago Bears. The second game is the Giants and the Cowboys. They both stink this year, but that usually is the biggest window of the regular season, and the nightcap is Miami going to Lambeau Field to play the Packers. And then, of course, on the other side, we have a game on Black Friday that's on Amazon, and that's the Chiefs, two-time defending champions, against the Raiders. So, if you guys are media buyers or planners and you could only have one or the other, would you go for Thanksgiving on the networks, or would you go for the Prime Video where there's a lot of shopping attributes that can be put into play by Amazon that the networks can't do? How about Brian? Brian Scheid, media believes in NFL Thanksgiving or Black Friday on Prime Video.

Scheid: Yeah, I don't know. Like many people, I tuned into the Jake Paul, Mike Tyson fight. I knew going in that a 58-year-old was not going to be a great boxing match, but I had serious lagging streaming issues while watching it. The broadcast cut out a couple of times or froze. I think seeing what we're seeing on social media, everyone had some issue with that. I wonder if that gives these companies pause when they're looking at streaming issues versus this legacy broadcast media. So, if I'm going to do this major ad buy, am I now facing this new risk? Obviously, Amazon's been doing these games for quite a while, and I don't think I've seen anything.

Reynolds: They still freeze at my house, Brian.

Scheid: Oh, they do? Okay.

Reynolds: A little bit, not a lot, but a little bit.

Scheid: So, I think from that perspective, not looking at the quality or the matchups of each game, I would think there might be a growing issue of whether these lagging or these streaming issues are going to be a factor going into the weekend because more people are going to be watching these games.

Reynolds: Zach, where do you stand: Thanksgiving or Black Friday expenditures?

Ciampa: My line of thinking is pretty in line with Brian's. Honestly, I had the same thought because I too watched the Tyson-Jake Paul fight, and there are still issues that come with streaming to that level, especially when you have games as large as these. If I were a buyer in media, I would go to traditional and stick with the Thursday game. However, there is an opportunity there at some point with a company like Amazon to integrate shopper media into the experience. I think a lot of folks are beginning to adopt the technology as well. So, I'd say that maybe in five years, we'll realistically see it be at the same level as traditional media. You also have the technological curve of you can just throw on the TV on Thursday, and it's easy versus how you get everything set up. If there are streaming issues, like we saw on Netflix with the fight the other day, that could be a factor in getting people to prioritize Thursday instead of Friday, but I know that I personally will be joining the large group of consumers in the stores on Friday myself, not buying any media but buying clothes.

Reynolds: Very good. All right. Now for the most important question of the day, guys. What's your household forecast for 2024 holiday spending? We're talking more money in person versus e-commerce. Mike, you're up first.

Nocerino: I fall into that category of spending relatively the same. I don't have anything going on this year that's going to necessarily make me want to spend more than I've done previously, and it'll probably be the normal mix of online and in-store, depending on the product. So, there you go. Nice vanilla down the middle.

Reynolds: Okay. All right.

Nocerino: Hopefully, somebody else has got a little more color.

Reynolds: All right, Zach, we're gonna leave that for you. What are you thinking?

Ciampa: My toxic trait is that I always have to outdo myself every single year, and I credit myself as being a really good gift getter, so I need to keep on raising the bar. So, the spending will definitely increase on my side, and we're also going to see some really interesting stuff, just really quick too, on what we're calling the value wars. You've been seeing it across quick-service restaurants, but retailers are also going to be really cutting prices to compete with each other. You'll be seeing that across the big-box stores and brands as well. So, I will also be doing a lot of personal shopping too. So spending is going up in my house.

Reynolds: Next, we're going to hear from Sarah James, industry editor of technology, media, and telecommunications news. She’s, my boss. She also does the recording and editing of MediaTalk. Sarah, this is going to be a big holiday for your son, Conrad?

Sarah James: We actually just got his gift. So, I have a five-year-old son who is a big fan of trains. And so just this weekend — and I'm going to speak not too loud — Santa found the train we're going to give him for Christmas, and we bought it at our local model railroad store. So, we could have gotten it online, and it probably would have been a little bit cheaper, but this particular train is actually from a German manufacturer, and my husband was worried that if we got it online, it would have the wrong plug. So, to ensure that we had the right US plug, we bought it at a local store.

Ciampa: That's valid. I do that too.

Reynolds: I do have a couple of changes in the lifestyle that are going to influence shopping. We've got a new grandson who will be seven months old by the time Christmas arrives, and our first granddaughter needs to get a bunch of stuff before she actually arrives here in February. There'll still be some store visits, but thinking is we're going to have more deliveries to my Mamaroneck this holiday season.

Ciampa: Congrats, Mike. That's awesome.

Reynolds: Thank you. And last but not least, Brian, you're the last guy to bat here. What are you thinking about holidays?

Scheid: Yeah, congratulations.

Reynolds: Thank you.

Scheid: One thing is my kids — I have a nine-year-old and a six-year-old — my nine-year-old is turning 10 two days before Christmas. So having a birthday like that, we always have way too many presents, and my brother always jokes we never get to the new year before my kids open all the presents they have. So, every year we're like, we need to buy less, we need to buy less. But it never pans out. I'm sure come 2025, they'll still be unwrapping some stuff.

Reynolds: The US economy thanks your kids, Brian. That concludes this episode of MediaTalk. I wanted to thank our guests — Brian, Zach, and Mike — for sharing their insights on what we might see from a consumer spending perspective during this holiday season. And a shout-out to the guys as well as Sarah for talking about their holiday spending plans. This is Mike Reynolds, and thanks to all of you for listening. We'll catch up on the next episode of MediaTalk. Happy Thanksgiving, everybody.