ICSC CEO on How Resilient Consumers Face a ‘Tale of Two’ Holiday Season

SPEAKER_1 (0:00)

Joining us now for more answers to that question is Tom McGee, president and CEO of ICSC and host of the From Where I Sit podcast. Tom, really appreciate you joining us today. Now, September retail sales seen as a pretty good read on the consumer. So what did the latest numbers tell you about spending momentum as we, of course, head into the holiday season?

Tom McGee (0:21)

Yeah, the consumer has been, first of all, good to be with you. The consumer has been very resilient. I'm certainly concerned around inflation, no doubt about it, but has been resilient and we expect that to continue during the holiday season. Our forecast is for growth between 4.3 percent to 4.9 percent. We look at the holiday season really as the fourth quarter of the year. And so our expectation is that retail sales will grow to $1.7 trillion.

The average spend, holiday specific spend would be about $650 per person. But underlying that number is that the top 10 percent is expected to spend five times that average. And so a lot of the growth is coming from the top 10 percent of income earners. Those that are more stretched financially are certainly very concerned around cost and inflation. So there's a little bit of a tale of two cities taking place.

SPEAKER_3 (1:19)

Tom, as we look at the numbers that we just got today as well, I mean retail sales advancing, you know, eight tenths of one percent, it looks like month over month. But when we start thinking about this, like we know these are nominal figures. How much is inflation actually the explanation for the retail sales growth, less so, I guess, the culprit?

Tom McGee (1:43)

Yeah, certainly some meaningful percentage of growth relates to inflation. Even in today's numbers, you know, a big part of the growth was related to the gas prices and so if you assume, you know, a three and a half or three percent inflationary, inflation continues, you're, you know, 4.3 to 4.7, 4.9 percent growth. So some portion of that is related to inflation.

But in the holiday, people will, historically, people lean in and we expect that to continue. The consumer has been resilient, quite frankly, because the employment market's been fairly strong and stable. And historically, when you look at the employment market relative to retail sales, if employment continues to be strong, people will spend. If we see some cracks in the employment market, then that is a troubling sign for retail sales, but we haven't seen that to date.

SPEAKER_1 (2:39)

Okay. And your survey did find that roughly 78 percent of shoppers do plan to spend the same or more than last year. And so that does speak to the resiliency. But you mentioned something that some of the 10 percent to the high income earners are earning, I mean, are planning to spend five times that. And so, I mean, is there really a middle ground or do you see just like a huge gap between those that are obviously supporting a huge bulk of the economy while only being in that critical 10 percent?

Tom McGee (3:05)

That 10 percent, that's a trend that has really taken hold over the last couple of years. If you look at consumer spending in general, the top 10 percent account for about 50 percent of retail consumer spending in this country.

That significance continues in the holiday. It's really a continuation of a trend that exists. Clearly, retail sales and just consumer spending in general has been very dependent upon that top 10 percent, and some of that has to do obviously with the wealth factor of people looking at their investment portfolio and seeing that continue to grow.

SPEAKER_3 (3:45)

Tom, a big theme that you guys found is that value is going to be a big part of the discussion. Comparison shopping, I guess, is a way to describe it. How much of that is because of the budget being constrained from your assessment, or just simply because the ability to do that is get easier and easier with AI tools and e-commerce shopping and sales all the time, etc.?

Tom McGee (4:11)

Yeah. I think some portion of it certainly is related to concerns around pricing. There's no doubt about it. But generally speaking, consumers are just so well-informed today and have the ability to really understand and price compare and look at reviews of products. That's been really a trend that's taken hold.

With AI, that only becomes easier to do. There's a combination of factors, but regardless of your income level and your price sensitivity, generally when you walk into a store and you make a purchase, you have done a lot of research around what you're looking to buy.