Q4 Retail Forecasts a Matter of Relativity and Details

They say numbers don’t lie, but they can mislead. Try nailing down a solid forecast for the economic outlook for the fourth quarter about to begin, and things becomes clearly foggy.

Former Saks Fifth Avenue CEO and Mastercard senior advisor Steve Sadove told PYMNTS’ Karen Webster that depending on where you look and how you do the math, consumers are actually in decent shape going into the holiday shopping season.

Except where they’re not.

“You get hung up in the detail if you look at it just on a month on month or even a month on last year, if you just want to look at that one-year performance,” he said. “Having said that, the lower-end consumer is feeling the pain enormously with fuel prices, with rents, some of the higher interest rates are just starting to hit people.

“The savings rate has come down. Even the holiday forecast at 7%, which is a healthy number, it’s not adjusted for inflation.”

Put another way, it’s the same as saying if sales were up over 11% in August year over year 2021 versus 2022, and Mastercard SpendingPulse data is forecasting 7% growth for the holidays — not adjusted for inflation — “that’s a slowdown.”

It just shows how comparisons matter, but they are also muddying the waters, as comparing 2020 and 2021 to any years before or after will yield odd swings that may or may not continue.

Sadove and Webster agreed that it’s a bit deceiving looking at the Sept. 13 report from the U.S. Bureau of Labor Statistics. It showed that the annual inflation rate in the U.S. eased for the second consecutive month in August to 8.3%, the lowest reading in six months and falling from July’s 8.5% and June’s 9.1%, which was the highest reading in four decades.

“I just did some back of the envelope [math] and took the numbers of August 2022 and compared them to August 2019 for every category,” he said. “You had all these big jumps of certain categories in 2021 and then they come down, and if you look at the world on a ’22 versus ’19 basis and eyeball it across categories, you actually see that it’s almost the same.”

See also: Inflation Higher than Expected; Food Prices up 11.4% Over Last Year

The 3-Year Stack View

Sadove is fixated on the longer view and what it says about the difficulty of making Q4 and 2023 economic predictions at this transitional moment in the U.S. and global economies.

Illustrating the fuzziness, he told Webster, “Just pulling some numbers ’22 to ’19, overall retail was up 22%. That gives you a sense of the overall consumer [standing] on a three-year basis.”

Noting that Mastercard SpendingPulse has apparel sales up 22%, tracking overall retail, and groceries sales and home goods are up 24%, he said, “With all the machinations that we’ve talked about, everything went to home, people only bought certain kinds of apparel. Now you see department stores were up 13%. So, on a three-year stack, yes, department stores have come back, but on a three-year stack they’re actually lower than the growth that you’re seeing.”

Similarly, on eCommerce, it’s the three-year view that he finds fascinating and possibly more revealing, as figures from the depths of the pandemic years can skew the numbers.

Webster noted that consumers frightened by empty shelves and endless supply chain news stocked up in 2021 especially, and with their purchasing power now diminished by inflation, they simply don’t have the available spend to make 2022 come out ahead somehow.

Sadove countered, “Except that apparel is holding up reasonably well if you look at the year-on-year numbers, and even if you look at it on a three-year basis. Part of it has to do with the shift in spend, because if you talk to any of the retailers, it’s slowing, but it’s still growing in high-end apparel because people want that fashion. What’s not selling is a lot of where we’re dealing with the markdowns because there’s so much inventory in the system.”

Learn more: New Survey Shows Consumers Less Optimistic Than Fed on Taming Inflation

Even so, the latest PYMNTS study on consumers and inflation has 70% of all consumers, including the affluent luxury shopper, making adjustments in how they spend their money, spending less in many categories since the cost of buying the essentials — food and gas — has skyrocketed.

The Mind of the Buyer

Webster noted that this kind of economic climate favors the discount chains, as consumers trade down and look to alternatives for the basics, including Amazon. She said it’s important not to underestimate Amazon’s quiet climb into the share of consumer spend it’s grabbing in clothing and accessories — roughly 11% now to Walmart’s 5%, according to PYMNTS data.

A good piece of it comes down to mindset, Sadove said, drawing another popular comparison: the 2008 housing meltdown versus the COVID pandemic and subsequent inflation wave.

“I was running Saks [in 2008] and was at dinner with the CEO of another large department store chain the night that Lehman went bankrupt,” he said. “All of a sudden, 25% of our business went away overnight not because people were poor, but because the psychological impact of the uncertainty about where the world was going.”

All of a sudden, that extra pair of Manolos didn’t seem that essential.

Read more: Why Retailers Should Worry About Inflation but Dread the Wealth Effect