Why January Is So Important for Retailers in 2023

Returns and Exchanges

As the holiday season draws to a close, retailers remain busy during the first month of the year. Gifts are routinely returned or exchanged, and shoppers show up with gift cards. With many consumers kicking off their New Year’s resolutions, workout gear and home organization sets have historically been popular purchases this time of year.

But this January is especially important for the retail sector. With the fiscal year drawing to a close in the coming weeks, many firms have yet to determine if the holiday season was a win or loss. And it’s an especially pressing question this year, given many economists anticipate a recession in 2023, which will harm consumer spending and retailers as a result.

Softening Sales

Despite concerns tied to the economy as a whole, the holiday shopping season’s early numbers came in stronger than expected. From November 1 to December 24 of last year, retail sales rose by 7.6%, according to MasterCard (MA) SpendingPulse. Still, data from Placer.ai shows that store traffic dipped during peak shopping weeks.

From Black Friday through Christmas week, sales dipped 3.2% on average across six industry leaders – Walmart (WMT), Kohl’s (KSS), Macy’s (M), Nordstrom (JWN), Best Buy (BBY), and Target (TGT). Compared to shopping patterns before the pandemic, the decline is closer to 5%.

Looking Beyond This Month

Consumer spending habits are being closely watched by economists as the new year gets underway. While there are signs inflation may have peaked, prices remain high, retail demand is weakening, and personal savings levels have fallen. The US Bureau of Economic Analysis notes people saved only 2.4% of their disposable income in November, down from a monthly average of 6.3% before the pandemic.

Analysts expect retailers will cut back on orders as they look to clear out excess inventory, which means less manufacturing. Plus, many consumers are now looking to build their finances back up after spending on holiday gifts and travel. It all adds up to a less-than-rosy situation for retailers hoping for a successful January to kick things off.

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