What this means: Retailers appear to be starting summer with a promotional bang to try and drive demand after a lagging first half of the year.
As Memorial Day ushered in the unofficial start to the summer season, promotions are plentiful across the retail industry. Both discretionary and non-discretionary categories were on sale throughout the holiday weekend, with some decreases mirroring the deep discounts of the holiday season. With discretionary retail spending tapering off compared to the past few years, it’s no surprise that discounts have crept back into the retail conversation. However, increased promotionality signals changes with consumer behavior and may have lingering effects across the retail industry.
Memorial Day typically signifies the beginning of the summer promotional period across retail, but this year, sales appeared to be both broader and deeper across retailers. Some general merchandise retailers advertised discounts of 50% off or more as a way to attract shoppers to convert during the holiday weekend. Many retailer earnings reports showed a slowdown in consumers’ demand for general merchandise, as shoppers turned focus from categories such as apparel, technology and home goods. Beauty sales appear to be an exception to this trend as consumers still value smaller luxuries. General anxieties around the economy, personal debt and lower savings rates all contribute to the consumer’s decline in retail appetite, coupled with desires to spend more on summer activities and experiences.
All of these changes in consumer behavior clearly have rattled retail banners to increase discounts heading into the summer season. While that may pop sales in the short term, this could be a slippery slope. As consumers look for increased value across the industry, a race to the bottom on prices to drive sales may not send the best message to shoppers for long-term industry health. Consumers become reliant on discounts, sales and coupons, which can pose adverse effects on retailers. The industry needs to proceed with caution across all categories to drive demand while protecting margins and profitability in the long term. Beginning the summer with deep discounts will only further the pain as back-to-school approaches in a few months.
What’s next: For long-term retail health, the industry needs to be cautious in promoting and deeping discounts too early into 2023 so as to not dilute brand and item value with consumers.