Holiday cheer for retailers may be muted following government shutdown, debt-ceiling crisis

One of the casualties associated with the recent government shutdown and game of chicken that legislators played with the nation's debt ceiling is consumer confidence. And this will have significant ramifications coming into the fourth quarter holiday season, especially as the debate over government spending and the debt ceiling crisis has not been resolved but only delayed until January. 

Holding the holiday season hostage means Washington has lost big points with big retail, and IRI measured the impact. Reminiscent of recession shopping behaviors, almost 2-in-3 consumers are cutting back on non-essential spending; half are again gravitating toward private label or other value propositions and 2-in-5 are beginning to scour online resources in search of coupons and deals. 

And that means the coming holiday season will become promotion heavy, more so than maybe retailers had been planning. 

There are some categories that may benefit from a return to frugal shopping behaviors. For example, it may be a boost for quick-meal solutions and beauty care as consumers pull back from going out to eat and getting pedicures/manicures and instead look for cheaper, at-home indulgences. 

But frugal consumers means a bust for retailers who are on the brink of rolling out holiday displays that have been in the works for months — much of that already-committed inventory is en route to distribution centers, if not already there, waiting for a post-Halloween roll-out.

Import volume at the nation’s major retail container ports was expected to grow 9.1% in October over the same month last year, according to the monthly Global Port Tracker report released Oct. 7 by the National Retail Federation and Hackett Associates. The numbers reflect merchandise ordered months before the shutdown as retailers planned for the holiday season.

Before the recent government showdown ran its course, the NRF was predicting that this year’s holiday sales would grow 3.9% over last year to a total of $602.1 billion. According to the NRF’s holiday consumer spending survey conducted by Prosper Insights & Analytics, the average holiday shopper will spend $737.95 on gifts, décor, greeting cards and more, 2% less than the $752.24 they actually spent last year.

If consumers remain concerned over their fiscal futures as the debt ceiling debate carries into next year, all of that extra inventory could be headed to the discount bins. 

And the retailer's worse fears may already be manifesting.  

NRF asked holiday shoppers if the political gridlock in Washington around U.S. fiscal concerns would affect their holiday spending plans. On average, 29% of respondents said the situation would somewhat or very likely affect their spending plans. Nearly one-third (32.7%) of those between the ages of 55 years and 64 years said political gridlock in Washington was somewhat or very likely to affect their spending, the highest percent among all age groups surveyed. 

When asked specifically about the overall state of the economy and how it would affect their spending plans, more than half (51%) of consumers said the economy would in some way impact how they spend this holiday season. Specifically, 79.5% plan to spend less overall, looking to cut corners and tighten budgets where they can. 

ShopperTrak on Friday reported that total retail store shopper traffic during the week of Sept. 29-Oct. 5 decreased 7.5% compared to the same time period last year. During the week of Oct. 6-12, foot traffic decreased 7.1% compared with 2012. The Washington, D.C. area saw an even greater decrease, with an 11.4% decline in year-over-year shopper traffic the week of Oct. 6-Oct.12.

Even prior to the government shutdown that began on Oct. 1, waning consumer sentiment had triggered a decline in retail store shopper traffic. During the week of Sept. 15-Sept.21, shopper traffic decreased 4.7% compared with the previous year. The week of Sept. 22-Sept.28 saw a 5% traffic decrease compared with 2012.

But there is a glimmer of holiday hope, still. 

“The furlough of hundreds of thousands of federal workers caused an inevitable decline in consumer visits to retail stores in the first half of October,” stated ShopperTrak founder Bill Martin. “Wednesday’s agreement, which also authorizes retroactive pay for furloughed federal employees, holds promise for a resurgence in shopper activity. However, we expect that it will take some time and revised strategies for retailers to recover from the impact the government shutdown had on sales and store traffic.”