Why Consumers Aren't Shopping for Christmas Sweaters

The pace of shopping has slowed down as shoppers remain wary with weak wage growth and economic uncertainty despite the impending holiday season.

Growth is stalling at major department stores such as Macy’s, Nordstrom’s and Dillard’s, whose sales all declined in the third quarter along with the value of their stocks. The slump in sales is a reflection that consumers are not flush with extra money as food and healthcare costs continue to rise.

“The middle class and lower middle class have not yet felt a significant benefit of economic recovery,” said Steven Barr, the head of U.S. retail and consumer for PwC, the New York-based tax and advisory services company. “Despite some positive indicators such as the decline in unemployment and small increases in wages, the consumer still is extremely cautious.”

Workers are also concerned about the future of their jobs and are reacting more cautiously this year, said Vince Gauci, president of VFG Associates, an insurance and professional services agency in Livonia, Mich.

“Consumers have a tendency to think that their jobs are not stable in these current economic conditions, which means that they are saving more for the possibility of the loss of their job,” he said. “Consumers and investors alike seem to be keeping more money in a cash position in the event of an emergency versus spending it.”

Department stores are facing tough competition from specialty stores such as Uniqlo, H&M Hennes & Mauritz and Zara-owner Inditex, whose brands have risen in popularity.

Instead of shopping at department stores and malls, the data indicate consumers are spending their money at discount stores and home improvement companies, said Jonathan Eyl, lead consumer analyst at Nasdaq Advisory Services, a New York-based shareholder and securities analysis.

“These companies have continued to see positive foot traffic in their stores, while department stores and mall-based retailers have not seen attractive numbers yet,” he said. “The holiday season is right around the corner and these metrics can shift very quickly post Thanksgiving.”

What Consumers Are Buying Instead...

Consumers are shifting their spending toward purchasing cars, furniture or dining out more frequently and “those purchases are still moving higher at a decent clip,” said Jennifer Lee, a senior economist at BMO Capital Markets, the Toronto-based advisory services firm.

Too many consumers are simply strapped for cash because of a large amount of student loans and credit cards debt and prefer to spend their extra money on events or things they can do with their friends.

“With our net income, we prefer experiential goods - things that we can share with others such as nice dinner, going to a movie, taking a road trip, seeing a show or attending a sporting event,” said Emily Sands, a sophomore at the University of Indianapolis in Indiana studying finance and Spanish. “On behalf of Millennials, I would like to say that we are broke. The average student has about $30,000 in student-loan debt upon graduating college, so we are trying to save money where we can.”

Shopping for Christmas gifts is a not a priority since Sands is busy juggling her classes, studying, working and building her professional experiences through on-campus organizations. When Sands has a free moment to shop online, she still prefers to buy “experiential gifts such as massages or tickets to an event.”

Lower gasoline prices are a boon to consumers and their budgets, prompting some of them to spend their money on going out to eat more and opting to save this discretionary income, said Eyl.

Since the majority of savings from the lower gasoline prices arrived in 2014 and earlier this year, consumers are now spending the savings they accumulated, said Lee.

“Prices were down as much as 36.8% at one point and this year the gains have not been as pronounced, but there are still savings to be had,” she said.

When oil prices started their descent in the summer of 2014, the personal savings rate was 4.6% to 4.8%. Half a year later, they rose to as high as 5.4%, but now the rate is back to 4.8%, Lee said.

Shoppers are opting to spend their money on food and tech and electronic accessories such as Fitbits, Apple Watches, smartphones, Segways and hoverboards, said Shah Karim, CEO of SafeRock, a Dumont, N.J.-based retail analytics and consulting firm.

“It’s not just clothing anymore,” he said. “Retailers will have a terrible financial season, cutting margins and throwing away profits. This means great deals for consumers as stores try to clear excess inventory.”

Although people tend to shop less when gas prices are higher, consumers do not always return when they decline, Karim said.

“This is deadly for malls, department stores and specialty stores,” he said.

Some people do not trust that gas prices will remain inexpensive and they choose to pay down debt or save it for an emergency, said William Clayton, president of Hudson’s Hill, a specialty menswear retailer in Greensboro, N.C. Even though companies are also benefitting from lower energy costs, the savings is not being translated to consumers.

“Unfortunately, the lowered gas and transportation prices do not seem to have affected the end consumer price of many goods as companies are just observing the added profits,” he said.

Wait for Better Deals?...

Black Friday and Cyber Monday have become less relevant for shoppers. More people now tend to shop before the beginning of the week of Black Friday, because they are accustomed to deals appearing earlier in the season, said Barr.

“Since 2008, the consumer is permanently conditioned to expect significant discounts,” he said. “Retailers are more aggressive with discounts and the deals come earlier and are more substantial.”

Some shoppers are still waiting for bigger and better deals since many retailers are flush with excess inventory.

“We are seeing that the cost-conscious consumer is still alive and well,” said Eyl. “With Black Friday deals being offered both online and in store at the same time, the convenience of waiting a week to shop online is there.”

Many people are waiting for the deals in late November to occur, said April Masini, an advice and relationship columnist and author based in New York.

“The press for Black Friday and Cyber Monday are giving shoppers a goal,” she said. “They’re waiting for those anticipated sales to open up and that’s when you’ll see wallets loosen, cash and credit cards exchanged and purchases committed.”

The biggest winner this holiday season will be consumers since "it is without a doubt a buyer's market," said Barr.

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