Early Black Friday discounts were far higher this October compared to prior years, signaling retailers are concerned that demand could be tepid during the crucial holiday shopping season.
Promotions across a range of categories, including apparel, appliances and computers, were significantly higher last month than in 2021 and 2022, data from Adobe Analytics show. For example, the price of apparel online was 9% lower throughout October compared to the beginning of the month, but in 2021 and 2022, it was just 2% and 5% lower, respectively, the data show.
Out of eight categories that are popular during the holiday that Adobe tracks, only electronics and toys saw fewer discounts last month than prior years, according to its analysis.
Adobe's data doesn't include promotions at physical retail locations but does cover over one trillion visits to U.S. retail websites, 100 million SKUs and 18 total product categories, which it says is more than any other technology company or research organization.
For years, so-called "holiday creep" has seen Black Friday discounts beginning earlier than the day after Thanksgiving, as companies look to prolong the shopping season and address shifting demands from consumers who want more time to buy gifts. While prices are already low, promotions are expected to peak on Black Friday through Cyber Monday, Adobe said.
While consumer spending fell in October, according to the new CNBC/ National Retail Federation Retail Monitor, strong discounts during the month did fuel spend online, according to Adobe.
Online sales grew nearly 6% to $76.8 billion compared to last year and was fueled by deep discounts and an uptick in buy now, pay later use, which allows customers to split up orders into four payments, according to Adobe. Last year, about 30% of overall holiday sales happened online and other non-stores versus physical retail locations, according to the NRF.
Research firm GlobalData's data back up Adobe's findings.
Both the depth of discounts and the total amount of items that were on sale during October also came in higher than the last four years, according to an analysis of U.S. retailers from GlobalData.
During October, discounts were on average as high as 24.1% for apparel, homewares, electronics, toys and games, sporting goods and beauty, compared to 16.7% off in 2019 and 12.9% off in 2021, GlobalData said. On average, 7.8% of all items were on sale at some point during the month compared to just 4.9% in 2019 and 3.3% in 2021.
Overall, Adobe's digital price index shows prices were lower in October compared to previous years. Last month, prices were down over 6% compared to last year. In Oct. 2022, prices were down just .7% compared to the prior year and in Oct. 2021, prices were up 1.9% compared to the prior year.
Bad times ahead?
The early and steep discounts, which are expected to reach record highs this holiday season, aren't necessarily a harbinger of tough economic times ahead. But the trend does provide insight into the state of an increasingly cautious consumer and the steps retailers are taking to drum up demand and remain competitive against persistent inflation.
"It shows a concern that they're worried about the holiday season. They're concerned that it's not going to be super strong," said Professor Daniel Rubin, an expert in consumer behavior from St. John's University's Peter J. Tobin College of Business. "That's kind of the impetus, right? That's why they want to stretch it out. That's why they feel that they need to offer deeper deals on a greater variety of product categories."
The variations on discounting each year reflect the nuances that have come with recent holiday seasons, which have been tough to predict because of the chaos that came from the Covid pandemic.
In 2021, consumers were flush with cash from stimulus, and supply chains were snarled, which created a classic case of high demand and low supply that caused prices to rise and promotions to fall. The following year, when both inventories and inflation had grown and consumers were starting to feel the burn of high prices, promotions rose.
This year, retailers are still trying to figure out the new calculus and may have "mis-read and over-projected" consumer demand for tangible goods, said Professor Brett House, who teaches economics at Columbia Business School.
"Higher discounts on goods may reflect a continued heavier interest by consumers in spending on services and experiences rather than tangible items as folks continue to make up for missed opportunities during the pandemic-induced shutdowns," House said of a trend that's persisted much of the year.
It may also "reflect a desire by businesses to bring inventories down and move product ahead of what is expected to be slower growth and weaker consumer spending in 2024 than we've seen this year," he added.
Hooked on discounts
So far, holiday outlooks from retailers reporting earnings over the past couple of weeks have been mixed. TJX told shareholders it's expecting a strong holiday season. Gap was a bit more cautious and said it expects sales to be flat or slightly negative.
Walmart finance chief John David Rainey told CNBC shoppers are "leaning heavily" into major promotions, and October trends left the company rethinking just how healthy the consumer is.
Target, which was bullish headed into the holiday this time last year, said this week it was too early to weigh in on the holiday season, even as splashy Black Friday ads litter its website and stores.
During a call with investors, the company's executive team used the word "value" 17 times and the words "affordable," "affordability" or "affordably" seven times.
If deep discounting is what's fueling holiday spending, a trend that began to pick up last year, consumers are getting accustomed to promotions and some retailers could find themselves struggling to convince them to pay full price.
"There's gonna be a really long term problem here," said Rubin, "where retailers are now almost conditioning consumers to really never pay full price, and so I think you might start to see even deeper discounts needed to kind of get people excited to create that sense of urgency."
He added: "I don't know how you go back from this. If you're offering deals all the time, consumers get used to that. They don't expect to pay full price and as a result, they won't pay full price and if you're not going to offer that discount for them, your competitor likely will."
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