Retailers have a new puzzle over the holidays: people are spending their money on trips

Retailers have a new threat this holiday season: wanderlust.

Americans are getting back into the air, filling up hotels, crowding theme parks — and they’re showing a willingness to spend more of their money on travel.

This sets up the fiercest battle of the holiday season for consumer wallets since before the Covid pandemic, with lingering inflation already weighing on household budgets during retailers’ watershed quarter. Retailers are juggling other challenges: selling off excess inventory, trying to appeal to consumers who have already bought a lot during the pandemic, and wooing shoppers who have become more budget-conscious.

For the travel industry, it was a year of recovery. Delta Air Lines, Mastercard and Airbnb are among the companies receiving deals. Other companies also indicated a shift towards experiences and services. nation live recorded double-digit growth in attendance at theatres, arenas, stadiums and festivals. Starbucks said customers were rushing for expensive drinks like pumpkin spice lattes.

“The trend of spending on experiences continues,” Mastercard CEO Michael Miebach said during a quarterly earnings call late last month. “We saw notable strength in airline, accommodation and restaurant spending, with an exit from categories such as home furnishings and appliances.”

The pullback in spending on goods has already warned some retailers of tougher times ahead. Amazon shocked investors in late October with a weaker-than-expected year-end forecast as e-commerce growth slows, and the company announced a corporate hiring freeze. Appliance giant Tourbillon reduce their estimates.

Shipping giant fedex failed to meet expectations in its September report. CEO Raj Subramaniam said he anticipated a “global recession”. Retail sales in the United States remained flat in September, a sign that inflation is weighing on consumers, since the figures are not adjusted for inflation.

walmart, Target, Home deposit, Macy’s and others will deliver their own updates to investors in mid-November. Walmart and Target over the summer disappointed investors when they detailed the financial cost of excess inventory.

Travel spending has soared, thanks in part to flexible office policies that allow Americans to travel more and book European getaways well ahead of the traditional offseason.

In September, airline ticket sales were up more than 56% from a year ago and 10.9% from the same month in 2019, according to Mastercard Spending Pulse, which measures retail sales. in store and online. Accommodation sales were up more than 38% from a year ago and 42% from September 2019.

“Taking the annual vacation, I think, is a right for people”, Hawaiian airlines CEO Peter Ingram said in an interview last month. “After being deprived of this for a few years when there were restrictions on the ability to move around, people are really embracing it and coming out.”

United Airlines CEO Scott Kirby noted that more relaxed office attendance policies also allow people to travel more.

“That’s why September, a normally off-peak month, was the third strongest month in our history,” he said on the carrier’s earnings call.

Appetite for travel persists despite skyrocketing airfares fueled by pilot shortages and aircraft delivery delays. Last month, executives also said many people were even willing to pay for more spacious seats. Air fares rose 43% on the year in the latest reading of US inflation.

“Travel remains extremely resilient,” said Anna Zhou, an economist at the Bank of America Institute. Even after Labor Day, when travel normally slows down, “that’s just not the case this year, especially for international travel,” she said.

For now, airlines are dismissing concerns about the possibility of a recession.

“While there is noise as to whether we are heading into a recession or not or if we may even be in it now, we have not seen any noticeable impact on our booking and revenue trends,” said Southwest CEO Bob Jordan on Oct. 27. call.

Airlines and hotels are not yet seeing a slowdown in travel. But if a recession hits, it could jeopardize all consumer spending — and cause even higher-income Americans to rethink big travel.

“Where we’re going in a year is hard to predict,” said Ingram of Hawaiian Airlines.

Tim Quinlan, senior economist at Wells Fargo, expects the holiday season to be the “last hurray” for consumers. He projects a 2% annual gain in holiday retail sales year-over-year in November and December, after adjusting for inflation. That compares to around 8.1% last year and an annual gain of 10.4% in 2020.

The bank originally forecast a recession around Labor Day. Yet unemployment remained historically low. The United States added 261,000 jobs in October, ahead of estimates.

Americans have kept spending down by cutting their savings rate, racking up credit card debt and dipping into their savings accounts, Quinlan said. Soon, he said, they will have to start pulling back and compromising.

“People spend more than they earn and that’s kind of the definition of what’s unsustainable,” he said. “The consumer is on borrowed time.”

Quinlan now predicts that a recession will hit in April, May or June.

U.S. credit card balances rose $46 billion in the second quarter, a 13% jump that was the highest in two decades, according to the St. Louis Fed. Real estate and non-real estate debt have increased sharply since the start of the pandemic.

Credit card delinquency rates at the end of the second quarter hit 1.81%, the highest since the first quarter of 2021, according to the St. Louis Fed. But that’s well below the historical average, and consumers are still sitting on healthy savings accumulated during the pandemic.

The National Retail Federation, a major trade group, joined other industry watchers on Thursday in forecasting more modest holiday sales – and said some of that spending would be funded by card debt credit and savings accounts rather than income.

Jack Kleinhenz, the group’s chief economist, acknowledged in a call Thursday that travel is also a spending priority for more consumers. Still, he said he sees it as a complement, not a compromise.

“You might say, ‘Well, damn it, that should take away retail sales because people are going to spend more on gas and on travel, plane tickets,’ but at the same time people are bringing food and gifts and we expect them to spend more on outfits.”

Travel may not be seeing a downturn because people often plan and pay for trips months in advance, said Jorge Barraza, assistant professor of consumer psychology at the University of Southern California.

“Maybe it’s just the kind of thing that people don’t see how much the prices have gone up and they’re willing to accept it because there’s a pent-up demand to travel,” he said. he declares.

And, he added, seeing friends or family post their trips on social media can motivate people to book vacations, even if it means dipping into their savings.

“When you have moments of stress and uncertainty, we’re more likely to see this YOLO behavior happen,” he said, referring to the phrase, “You only live once.”