October’s E-Commerce Sales Provide an Ominous Sign for the Holiday Season

October’s early holiday online shopping bump failed to materialize in a meaningful way, leaving retailers wondering whether the rest of their busiest season would live up to the already meager projections for fourth-quarter sales growth.

U.S. e-commerce spending was up 4 percent in October compared to a year ago, according to data from commerce protection provider Signifyd. The performance fell short of Signifyd’s 7 percent projected growth for the month and caused the company to lower its forecast for the entire holiday shopping season.

Much of the miss is attributable to the apparel vertical, with the category's forecasted strong sales expected to power growth throughout the fourth quarter. Instead, apparel sales were flat in October, according to data from Signifyd’s Commerce Network of thousands of U.S. retailers across multiple verticals.

Data From a Broad Array of Retailers Points to a Disappointing Holiday

Signifyd’s latest data analysis points to a holiday season — defined as October through December — in which total online sales will finish 4 percent higher than holiday 2022. That’s a notch lower than the 5 percent growth Signifyd projected a month ago. The projections are based on recent transaction and growth trends as well as seasonality factors. When those elements change, the projections do, too.

Of course, any change in the forecast’s elements reflects a change in consumer behavior. October’s numbers and Signifyd’s revised holiday projection indicate that even as inflation eases, it retains a strong grip on consumers’ sensibilities.

“The gap between our initial 7 percent growth projection and 4 percent actual growth in October can likely be attributed to consumers holding back in anticipation of better deals later in the season or to the continuing trend of trading down,” Signifyd Data Analyst Phelim Killough said. “Most likely it’s a combination of the two.”

The Confounding Inflationary Economy Lives On

In recent years, a series of dramatic global events and unfamiliar economic conditions have made holiday shopping projections particularly perilous.

“The last few years, the holiday shopping season has been filled with unmatched peculiarities for consumers and retailers alike,” Jack Kleinhenz, the National Retail Federation’s chief economist, recently told reporters. “This year, there’s a whole new set of dynamics in place, and we have both pluses and minuses.”

October, for instance, saw remnants of a trend among consumers who have been more focused on buying essentials than on buying discretionary items. The trend, driven significantly by higher grocery prices, saw grocery sales rise by 29 percent over last year, while sales of luxury items, such as jewelry and high-end watches, were up only 3 percent year-over-year.

“The e-commerce world is very splintered in terms of who is seeing huge growth and who is seeing stagnant growth," Signifyd Chief Customer Officer J. Bennett explained. "So, that 4 percent increase overall isn't equally distributed. Grocery, alcohol, and consumer packaged goods continue to see incredible increases year-over-year, driven mainly by inflation. Where we're seeing less impressive growth and a lot more discount use is in luxury and apparel.”

Holiday Fortunes Likely to Vary Widely by Vertical

Despite the October surprise, it’s early in the holiday season and disappointing sales aren't a done deal. For one thing, not every vertical disappointed in October.

Sales of alcohol, tobacco and cannabis products were up 19 percent over a year ago. Maybe another sign of consumers feeling stressed? Leisure and outdoor goods saw sales 14 percent higher than October 2022, and electronics beat the month’s average, finishing up 5 percent.

On the downside, beauty and cosmetics sales were down 3 percent year-over-year and home goods and decor, which has been suffering a post-pandemic hangover, declined by 5 percent.

Still, all the numbers in Signifyd’s analysis represent averages from many retailers. That means individual retailers that deploy discounts wisely, provide exceptional shopping experiences, and connect with customers in elegant ways when they're ready to buy, have the opportunity to do better than average.

Mike Cassidy is head of storytelling at Signifyd, a commerce protection provider.