With holidays around corner, Minnesota retailers, shoppers expect less gift-buying

Three months before Christmas, Steve Carlson of Burnsville already knows he will scratch some things off his holiday shopping list.

With consumer prices still high, Carlson said he and his wife plan to buy cheaper and smaller gifts for their family. "A lot more smaller gifts of lesser value. Get back to what [the holidays] used to be about," he said while shopping at Twin Cities Premium Outlets recently.

For the same reasons, many consumers will start holiday shopping early and look for bargains, retail analysts say. And retailers are already starting to adjust.

According to an August survey of U.S. consumers by NPD Group, 43% will spend less on holiday purchases this year than last and 56% said they plan to shop earlier.

But not too early. Most of the shoppers a Star Tribune reporter spoke with at local malls last week said it was still too early to think about the holidays.

And even if people buy less, they may wind up spending more because consumer prices have risen so much this year. Deloitte's annual holiday spending report, released last week, forecast that retailers will experience revenue increases of 4% to 6% over the holidays.

That's in line with the annual growth the country saw before the pandemic as opposed to the outsized jump in holiday sales last year when sales shot up more than 15%.

Last year, retailers benefited from pent up demand when shoppers were excited to finally get together with loved ones. This year, disposable income in many households is being squeezed by higher prices for basics like food and energy. One result, said NPD analyst Marshal Cohen, is they will do less impulse spending, which typically accounts for one-fourth of holiday retail revenue.

The holiday season can not only greatly impact the full-year earnings of many retailers, but it also can be seen as a barometer for the overall health of the U.S. economy.

Doug Killian, of Lake Elmo, said he will likely give travel-related gift cards to loved ones this year. He plans to spend less than he did last year and reduce how many gifts he buys.

"For us, it's more enjoying some of the traditions of church and enjoying the holiday lights," Killian said.

Retailers are responding to the shift in consumer spending in a variety of ways. Several have hinted they will increase promotions and sales compared to last year to try to entice shoppers to buy. Amazon is rumored to be launching a second Prime Day in October. As it revealed its top toy list for the season, Walmart announced it would offer more temporary price "rollbacks" on toys this year to help customers save.

Sides, of Deloitte, said he thinks the season will be "highly promotional" as retailers try to shed some excess inventory they ordered during the last year.

Some stores have adjusted the way they order products. As it works to reduce its inventory of unwanted items, Target has said it canceled more than $1.5 billion of fall product orders.

This month, Legacy Toys owner Brad Ruoho is ordering the majority of toys he hopes will be popular sellers come the holidays. It can still take long to get certain items, but shipping delays aren't as much of a concern as before when he tried to stock early last year. Now, Ruoho, who plans to open a new store later this month at Rosedale Center, said he is being more selective on what he orders.

"I'm trying to predict what customers are buying and act accordingly," Ruoho said. "We are trying to be careful and make sure we have enough stuff. ... We're going deeper into certain SKUs [stock keeping units] and not as wide in others."

For example, Ruoho is reducing Legacy Toys' model car selection from 200 to closer to 120 items focusing on some of the most popular models.

"There may not be 20 gifts under the tree, but there will be the main one," he said.

Ordering products for Christmas has been a headache the last few years for Constantine Rolin, co-owner of the Hey Joy toy store which opened at the Mall of America in December of 2020. During the last two years, the store, whose founders are from the Ukraine, has missed some of its ordering deadlines and had to deal with logistical issues.

This season the Ukrainian-Russian war has hurt some of Hey Joy's investors and forced Rolin and the rest of his partners to delay holiday ordering to just recently.

"It is extremely, extremely late," he said.

But Rolin, who last year helped open two new Hey Joy toy stores, said he still feels positive about the season.