In Depth

Holiday Spending Myths Debunked

Think you know all there is to know about holiday shopping in 2014? Might be time to think again. While the headlines during the holiday season tend to be as unvarying as the seasons - “The Price of Gas Will Control Consumer Spending,” “It’s All About the Holiday Deal,” and the ever popular “Christmas: Once Again About To Bankrupt Us All” - the actual situation on the ground is often somewhat more complex and fluid that the average holiday retail column gives it credit for being.

But PYMNTS doesn’t write the average holiday retail column and though most of the staff still dedicatedly believes in Santa we want to help our readers keep it real this holiday season. And so here are the top three holiday spending myths, debunked.

1. Gas Prices Are Falling, So People Are Shopping More

Gas prices are undeniably down this holiday season. down around $1 less per gallon than in June. Moreover, the price of fuel has consistently been falling over the last 8 weeks - in December 2014 gas is 15 percent cheaper than it was in October. Morgan Stanley estimates that as a result of falling gas prices consumers will have an extra $40 billion more to spend this holiday season.

And the spending Hunger Games, spurred on by the lower cost of gas, is exactly what many credible sources - CNN, CBS, the Wall Street Journal among them - have been using in their headlines to trump that possibility of in the last few weeks.

Interestingly, the nation’s CFOs are rather cautious in their enthusiasm for the goods news.

“We’ve been fooled before,” Jack Kleinhenz, chief economist for the National Retail Federation, told The Journal. He went on to note that gasoline prices are volatile and that what is down today could skyrocket by the end of the year.

Plus, even if those gas savings hold out, they may matter a good deal less it would appear on first glance. Human beings need fuel more than cars, and the price of human fuel - food - is on the increase in 2014. On the whole food inflation is around 3 percent--above the 20 year high of 2.5 percent. Moreover, severe weather in California and the Midwest combined with a an unusually weak year for livestock have created record highs in the cost of beef, pork and fresh fruit - all of which are forecasted to continue and possible get worse in 2015.

And food isn’t the only thing that costs more this year - the prices of electricity, natural gas, heating oil and healthcare are all also on the rise this year in much of the country. Not to mention the cost of data plans to keep all of those consumer’s smartphones humming.

Result--gas prices may be down, but it won’t mean consumers have more money for discretionary spending due to other cost increases.

2. ‘Tis The Season For Discounts, (If You Know When To Shop)

What’s the best day to purchase goods online in terms of pricing?

If you said Cyber-Monday and shopped accordingly – the odds are pretty high you actually paid more than you would have had you shopped earlier. A little known fact is that American shoppers’ favorite online marketplace, Amazon, actually raised prices for Cyber Monday, and in fact has regularly done so for the last several years.

But before consumers decide to pick on Amazon, it does discount on Black Friday, which is more than what can be observed from the world’s largest retailer Walmart, in-store and online. According to the same survey by Upsteam, prices at Walmart are, on average, lower in the weeks in November that precede the formal Christmas rush than they are on Black Friday or Cyber-Monday.

Shopping has become more diffuse across the entire Christmas season, with more touch points like Green Monday or the Saturday before Christmas (which is routinely the actual busiest day of the holiday shopping season) which means clustered deals are becoming as much of a relic as Grandma’s holiday ornaments.

Moreover, the research shows that there’s almost no observable pattern in retailer discounting during the winter shopping season. “There was no consistent strategy or head-on competition among the retailers," Upstream CEO Andre Peleg noted. "The average discount rate attained at both Amazon and Zappos (at different times in the scale), was 2.8 percent but was only 0.5 percent for Macy's.

Moreover, notes Peleg, the story of holiday discounts is simply not born out all that well when one looks at a retailer’s entire inventory, as opposed to highlighted Christmas deals.

“While there may be a smaller set of "show" products that are actually being discounted, it's probably a myth that retailers provide huge discounts across the board during the holiday season."

3. Consumers Go Credit Crazy During Christmas

The other popular Christmas time holiday shopping story is that consumers go crazy during the holiday shopping season. Marshal Cohen, the chief industry analyst of The NPD Group observed three years ago that his consistent anecdotal experience during the holiday season was that of “consumers whose shopping reach had exceeded their spending grasp. A credit card maxes out and a member of the shopping party is sent outside to collect another card from the waiting car. Or the cashier offers up a sub-total and the shopper starts striking items until the bill fits the cash on hand.”

However, the data on this again tells a slightly different story. Only about a third of American consumers do all or most of their Christmas shopping on credit cards. And less than half – 40 percent – plan to use credit cards at all this year according to the National Retail Federation.

While holiday debt can have a crippling effect on some—the actual numbers of people effected are not well reported. Sources range from 14 percent to 22 percent of the number of people who will get into trouble this year as a result of credit card indebtedness. Simply stated, consumers rack up credit card debt during the holidays at a not much faster rate than they do during the rest of the year. Data from Accenture further notes that the majority of people make a budget for their Christmas shopping. And, while the part that gets reported is that almost half of consumers spend more than their budget. The majority stay within their budget.

Further, since the financial crash, (and the resulting credit crunch) consumers have become increasingly likely to save for Christmas, instead of relying on debt. First Data reports this year that, for there are “encouraging signs” that consumers are using credit cards a bit more this season, something that First Data’s SVP of Information and Analytics Krish Mantripragada attributes to consumers feeling a bit more confident about the economy and their overall financial health.

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