Early Holiday Sales Are 'Brutal Price Compression' Events in CE: NPD

October promotions from Amazon and Target will “jump-start the holiday shopping season and boost the lagging fall season,” blogged NPD analyst Marshal Cohen Thursday. Target’s Deal Days (see 2210030007) already came and went, with the three-day sale event ending Saturday; Amazon’s Prime Early Access sale runs Tuesday-Wednesday.

Stretching the holiday shopping season, starting with Amazon’s first October Prime Day event in 2020, was beneficial for technology products initially, “but has increasingly turned into a brutal price compression event,” said analyst Paul Gagnon: “The broader selling season eases pressure on retailers and brands to sacrifice profits, allowing consumers to spread their budgets out for these bigger ticket purchases.”

A “major wild card” for the CE segment is inventory, Gagnon said. Overstocked retailers will be “eager to exit the holiday season with a lower level of inventory in preparation for a difficult economic environment in 2023," he said. “If there is still a lot of inventory on hand, then it might become imperative to up the ante with promotions and capture consumers’ last-minute shopping attention.” TVs, AR/VR and other key holiday products “have a much higher level of price elasticity than other items,” Gagnon said. The need to shop deals is a “prime motivator for tech shoppers during the holidays," so early promotions will be welcomed by consumers looking to save, he said.

October events will likely pull forward some spending that would have occurred during November and December, analysts said. Three-fourths of holiday shoppers plan to spend the same or less than last year, said an NPD survey. NPD toy analyst Juli Lennett said the early start to the holiday shopping season this year could “negatively impact some, though not all, of the weeks between Thanksgiving and Christmas.”

The survey showed Black Friday is still seen by 22% of consumers as the day to find the best holiday deals, followed by pre-November events such as Prime Day (19%). There will always be consumers waiting for Black Friday sales, Lennett said, “but that doesn’t mean they won’t shop the October sales," she said: "There are some things that are always last-minute holiday purchases.”

Though pre-holiday promotions changed the shopping dynamics in October 2020, consumers were in a very different state of mind in the midst of the pandemic, said Cohen. Some 52% of consumers are less concerned about COVID-19 vs. a year ago, said the survey. Today consumers have more shopping options with fewer COVID-related concerns, "which could mitigate the influence of early-season promotions,” he said.

NPD doesn’t foresee product shortages in toys this season, but if parents see the toys they’re planning to buy on promotion now, “they will most likely buy it now,” Lennett said. Inflation will leave more consumers cash-strapped over the holidays, though, “which could cause them to wait for their last paycheck of the year to shop for toys,” she said. If early promotions go well for retailers, and they deplete more inventory than planned, they might not need to promote as much closer to Christmas, “which could surprise consumers," Lennett said.