By Sam Boughedda
In a note to investors Thursday, Morgan Stanley analysts said this holiday season will likely be characterized by a bargain-savvy consumer.
They explained that a Morgan Stanley survey revealed 70% of shoppers are waiting for stores to offer discounts before they begin their holiday shopping, and the majority of shoppers are waiting to see deals in excess of 20%.
"Consumers are largely planning to spend a similar amount on holiday goods this year versus last year. Stores offering the biggest discounts will be able to grab the largest wallet share but at a hit to margins," they wrote.
They added that the firm's U.S. Economics team sees persistently higher inflation, rising interest rates, and fading excess savings as the main headwinds facing the consumer holiday shopping this year. Although, they noted that the labor market remains strong, providing a positive driver for consumer spending this holiday season.
"Mirroring the pattern we have been seeing since pandemic restrictions were lifted, consumer demand for services are stronger while the outlook for goods is softening. Our US Airlines team is bullish on travel and they expect a strong holiday season. The team's leading indicator for air traffic (FLITE) is forecasting revenue passenger kilometers (RPKs) well above 2019 levels," they continued. "Department stores and specialty apparel retailers' profits are at risk this holiday season as these companies are over-stocked and retailers have a tendency to slash prices when consumers are hesitant to spend. Slowing discretionary spending is also likely to weigh on hardline/broadline retailers and retail sales appear to have already pulled back in recent weeks even with higher promotions."