• by Corinne Casagrande , November 30, 2021

As marketers navigate the second pandemic-influenced holiday season, some conditions look a little like last year. Holiday shopping has started earlier again, with sales pulled forward as early as September. Wages are also continuing to climb heading into the holiday; in October, hourly wages grew 4.9% from a year earlier.

However, 2021 does not look the same to consumer household economies as it did this time in 2020. Marketers need to be careful of using last year as a baseline to forecast end-of-year results.

Last year, the overall personal savings rate was an impressive 13.4%, but not everyone was squirreling away stimulus. Americans with high household income had increased discretionary money to spend. Deferred spending on entertainment and travel was spent on stuff they could wrap. 

This year, consumer confidence numbers indicate that the highest and lowest income consumers are converging in cautiousness, with upper income households proportionately less bullish than last year. Consumer sentiment is dropping and so is the confidence gap between high- and low-income households.

Last year, a brand’s affordability to consumer cohorts was a factor in the success of a holiday campaign. This year, a brand’s distribution footprint may be a factor in missed holiday sales.

Geography should also be expected to impact spending, as inflation effects spread unevenly. Inflation is up 7.3% from a year ago in wide swaths of the Midwest and South, while coastal regions saw prices rise just 5.4%, according to the Wall Street Journal. While prices in California may be higher in absolute terms, the increases to everyday purchases in the West and the South are steeper, shrinking discretionary income in the wallets of residents who live there.

Further compounding regional differences are the increased share of wallet spent on cars. On top of new and used vehicle prices skyrocketing, gasoline prices are up 49.6% year-over-year for the whole U.S., and an even higher 53.4% in the South. Not only does gas cost more, but people who don’t live on the coasts also buy more of it. Consumers in the Midwest and South spend 4% more of their annual expenditures on buying and driving their cars than in the Northeast, according to 2020 Consumer Expenditure Surveys from the U.S. Census Bureau. Demand for gasoline typically stays the same regardless of its price, forcing other sacrifices to be made and eating into marketer’s share of wallet.

It is not just problems at pump squeezing consumers in the middle of the country—the increase in cost of utilities and furnishings are higher in the Midwest. Costs for grocery proteins (meats, poultry, fish and eggs) are rising higher in the South. This creeping inflation, along with the late summer rampage of the Delta variant, is affecting economic optimism. Consumers are less bullish in these regions, with the South registering 4 points lower in consumer confidence in September than the Northeast and 3 points lower than the West.

As they round out the year, all Americans may be gripping their purse strings a bit tighter. When you ask consumers to guess what prices will look like next year, they expect a year-ahead inflation rate of 4.8% (their highest collective guess since 2008.) But some consumers are seeing their holidays budgets disproportionately shrink at the pump and grocery store.

This holiday season has plenty of new variables when trying to understand what sales will total for the year. Marketers with heavy footprints in non-urban areas of the Midwest and South also need to factor the squeeze on consumer’s discretionary income into their end-of-year forecast.