The holiday season is traditionally a time of good cheer and brisk spending. This year the usual seasonal cheer is tempered by higher prices and fears of inflation taking an even bigger bite out of shoppers’ budgets. After two years of strong holiday sales, retailers can expect smaller gains this year. Consumers are prioritizing the basics and spending less on non-essential general merchandise — in this environment, promotions are a handy lever retailers can pull to entice shoppers to spend, which will reduce inventory during and after the holidays. Inflation Causes Consumer Pullback 77% of consumers stated they have or plan to cut back spending because of inflation, down 4 points compared to the prior month. Restaurant dining remained the top category for reduced spending but consumers are easing up on their cutbacks in this area. Q. Due to inflation, have you or do you plan to cut back your overall spending on product purchases? Base: Total Respondents 1056 Q: On which of the following types of products/services have or do you plan to cut back spending? Base: Plan to cut back on overall spending due to inflation 812 Source: The NPD Group/Omnibus Survey October 2022 “Although sales revenue performance remains on par with 2021, the continuing unit-sales deficit compared to previous years highlights the inflationary reality that consumers have less spending power than they did in the past,” said Marshal Cohen, chief retail industry advisor for NPD . “However, as the cost of living continues to rise, consumers will continue to spend. They just need the right enticements. And, when done right and at the right time, promotions are proven to help consumers to open their wallets and spend.” Throughout 2022, as prices for food and general merchandise have continued to increase, the amount of promotional activity has also grown. In fact, in the third quarter, about 40% of general merchandise units were on promotion, which is 7 percentage points higher than during the same quarter in 2021. More Promotions With Less Lift In Q3 2022, about 40% of units were on promotion, increasing 7 percentage points compared to last year. General Merchandise Weekly Percent of Units on Promotion: 2020, 2021, YTD 2022 Includes Accessories, Apparel, Auto Parts, Auto Tires, Beauty, Footwear, Housewares Juvenile, Office Supplies, Outdoor/Team Sports EQ, Small Appliances, Tech, Toys Source: The NPD Group/Price and Discount Trends Retailers and manufacturers need to be wary of promoting too frequently, which can dull the power of promotions. In the third quarter of 2022, all general merchandise industries tracked by NPD increased the number of units on promotion. The apparel industry posted one of the largest increases — more than half (53%) of apparel was sold on promotion, up 10% compared to the third quarter of 2021. Footwear on promotion has risen 12% in the third quarter, versus the third quarter of 2021. “Even with more items available during promotional periods, there has also been a decidedly softer week-over-week sales lift from those promotions,” Cohen said. “The 2022 lift heading into mid-October promotional events fell short of the October lift of 2020, which is likely due to the presence of other sales earlier in October.” The week-over-week lift heading into October’s promotional events did not match October 2020’s lift, likely due to the presence of sales earlier in October. Dollar Volume and Week-over-week Percent Change Source: The NPD Group/Point-of-Sale First Read Data/Limited Release Looking Ahead to the New Year As always, promotions continue to be important for retailers trying to keep shoppers spending throughout the holiday season . And in 2023, promotions will be even more crucial, as retailers and brands look for ways to slim down inventory gluts and respond to consumers’ annual holiday shopping hangover. “Holiday sales numbers got off to weak start, so retailers hit hard on promotions in October to push more spending,” said Don Unser, president of thought leadership for general merchandise and retail for NPD . “But these promotions aren’t discounting more in value; they are just increasing the frequency, which results in lower comparative lift. Add to that the runaway train of rising food prices, and it’s clear retailers have a heavier lift this year and into next year, when it comes to making decisions about promotional depth and timing.” Vertical Industries in Focus: The True Meaning of Promotions Larissa Jensen Vice President, Industry Advisor, Beauty The share of units sold on promotion in the U.S. beauty industry represents about one-quarter of units sold. That share has declined over the past two years, not only versus 2020, but also compared to 2019 (before the pandemic). Despite the reduction of units on promotion, the beauty industry continues to post growth in both revenue and units across all categories as consumers trade up through their product and brand choices. For example, growth in both fragrances and hair care has been propelled by premiumization that is happening in each category, with consumers opting for higher-priced items and luxury offerings. Retailer promotions in particular tend to cause sales spikes throughout the year because consumers have been trained to wait for deals. Even so, we continue to observe consumers shifting to a “treat mindset,” leading to stronger growth in non-promoted products across certain beauty categories, like fragrance. Looking ahead to 2023, the beauty industry might be at risk for an increase in promotional levels if consumers find they have an overabundance of products after treating themselves to little luxuries in beauty over the past few years. Beth Goldstein Executive Director, Industry Analyst, Fashion Footwear and Accessories Footwear is among the most promotional general merchandise industries, in large part due to the high level of fragmentation and competition among brands and retailers. In 2019, prior to the pandemic, 43% of units were sold on promotion through the third quarter. In 2021, with low inventory and high demand as consumers emerged from the pandemic, this percentage dropped to 37%. In 2022, before even hitting the holiday season, it was back up to just above pre-pandemic levels, as the inventory scale tipped the other way and demand slowed. And while the fashion category has been a sales-growth bright spot in 2022 as consumers returned to in-person work, socializing, and other pre-pandemic activities, demand has also been propelled by promotions. The share of units sold on promotion in the third quarter this year was 16 points higher than it was last year. Performance footwear saw the smallest increase. It seems the lower level of promotional activity in 2021 was unsustainable. We’ve seen increased promotion levels each quarter this year. We expect that to continue throughout the holiday season and into 2023, until there’s improvement in the macroeconomic conditions impacting consumers. This discounting will offset the base-price increases that have affected most of the major footwear categories, ultimately flattening out the average selling price, which has been growing for the better part of two years. Maria Rugolo Director, Industry Analyst It’s no secret that higher prices are affecting how and what consumers are buying. In fact, nearly 80% of U.S. consumers recently told NPD they plan to cut back their total spending due to inflation. The category they expected to spend less on, after food, was apparel. While this is unwelcome news for apparel manufacturers and retailers, it does make sense since many consumersinvested heavily in this category in 2021. Retailers must be cognizant of consumer spending changes caused by rising prices. NPD’s Checkout Omnichannel Tracking data reveals the amount consumers spend is growing, but shopping frequency is declining. With fewer shopping trips, retailers must find ways to capture shoppers’ attention while they are in stores and, in some cases, play up one-stop-shopping. One tried-and-true attention-grabber is promotions. But not all categories exist on the same promotional playing field. Some need-based categories perform better at full price, while other “nice-to-have” categories must rely more heavily on promotion. In the third quarter of 2022, over half of apparel units sold were promoted — a 10-point increase over last year, even though total unit sales fell 6%. The only unit growth came from promoted products, which rose 17%. Unit sales of products that were not promoted fell 20%. As retailers look to realign inventory, higher pricing, coupled with more promotions, has helped to keep sales revenue afloat, even as unit sales decline. These days, companies must quickly align with the areas where their customers are spending. For example, when weddings came back, party dresses and more formal attire were in demand and not as heavily discounted. There are many areas like this where we can see quick shifts and fluctuation. And because spending is in flux, companies will need to continue to pivot quickly, and promote effectively, to meet shoppers’ changing needs. Dirk Sorenson Executive Director, Industry Analyst The sports equipment business is currently wrestling with how to address inventory challenges caused by the recent reduction in consumer demand. And suppliers and retailers are turning to promotions to address this challenge. Golf provides a good example of how the sports industry is using promotions to handle oversupply. Golf balls are often used by retailers to generate traffic and they experienced a low single digit unit-sales increase after being promoted in the second quarter of 2022; however, promoted prices were almost 15% higher than they were the prior year in the second quarter. Why? Because retailers were less concerned about using broad promotion to generate retail traffic and more concerned with drawing down inventory. The golf club category, on the other hand, had a larger share of promoted units while promoted prices increased slightly. This all occurred in the second quarter, as golf club sales declined in low single digits. Retailers were trying to create demand across the entire golf club category, not just a limited subset of items. The lack of deep discounts for clubs was influenced by costs for such equipment increasing. This was a common trend for many sports hard goods. These divergent trends for sports equipment are evident across all retail channels. As retailers and manufacturers continue to manage reductions in demand with associated price increases, many sports equipment sales trends and promotions trends will resemble the golf club promotions seen in the second quarter. Very little promotion to generate traffic will occur. Kristen McLean Executive Director, Industry Analyst In the U.S. book market, we expect 2022 holiday sales to slip back toward pre-pandemic timing with economic concerns causing a bit of a drag on shopping. That means a later start than last year, and stronger volume for hotly anticipated titles in autobiography, pop-culture, lifestyle, and cooking. Black Friday and Cyber Monday promotions are less of a factor when it comes to books, but holiday volumes definitely ramp up the week after Thanksgiving. While 2022 will fall short of 2021’s heady heights, we expect the volume to still come in over pre-pandemic levels by the time we finish the holiday. Cover prices have already gone up on new books this year; so far, promotions have been limited to price-matching among the biggest retailers on very specific titles. Overall stock levels are good this year, so we think there will be plenty of book buying, especially in children’s categories where books are seen as an affordable, high-value gift. Juli Lennett Vice President, Industry Advisor, Toys The retail situation with toys is the opposite of last year. There is more than enough toy inventory in the channel, which will spark higher promotional levels and likely deeper discounting. With inflation and other macroeconomic factors working against consumers — which could move toy purchases to later in the season — we can anticipate much stronger promotional levels and deeper discounts this year compared to last year. We’ll also see a stronger shift from the online channel to in-store, where average selling prices are lower. It will be challenging to grow during these two weeks. Paul Gagnon Vice President, Industry Advisor, Consumer Technology Early-season tech sales have been slow, which is a bit surprising given the trend of the last few years to drive early demand and, for some key retailers, to launch early October promotions. This could indicate consumers are waiting for traditional deeper discounts on Black Friday and Cyber Monday this year. Therefore, sales could grow against the softer Black Friday performance last year. Discounts have been modest so far this holiday season, but electronics product costs have been marching steadily lower, along with lower logistics costs and better availability. There is still room for good promotions over the holidays, especially as the season winds on and if inventory pressures build due to a slow start. TVs are a frequent headline product for Black Friday promotions and drive a significant amount of tech revenue each holiday season. This year will be no different. Prices have been, and will continue to be, much lower than they were a year ago; there is plenty of inventory and assortment to choose from. Purchase interest is high for mobile products as consumers get back on the road to visit friends and family this holiday season. Expect plenty of promotions and discounts on products aimed to make travel more enjoyable, like smartphones, wireless headphones, and tablets. #Holiday

While Halloween will rule U.S. store shelves and consumers’ attention for the next few weeks, retailers’ attention is already fixed on the upcoming holiday shopping season. Some of the lessons learned throughout the pandemic period will need to be cast aside, but other pandemic behavior shifts will remain in play. Keeping the focus on consumers and their spending priorities is a helpful way to successfully navigate the coming holiday season and beyond. Reemergence Mindset It’s not all doom and gloom in the retail world, as more U.S. consumers are going out in the world and spending again. We can anticipate more holiday parties and travel throughout the season this year, which means more spending on products for home entertaining and out-on-the-town apparel. Still, the specter of higher prices — and lower spending power — could dampen the celebratory mood. “Retail sales most likely won’t hit high peaks this year because consumers’ budgets are a lot more stretched these days,” said Don Unser, president of general merchandise and retail thought leadership . “That’s why a longer holiday season is good news for retailers. Overall, holiday revenue might turn out to be similar to last year, but unit sales most likely won’t break any records.” Average Price By Industry Increases in average price continue into 2022 compared to pre-pandemic. ​ Fewer Promotions​|Higher Prices​|Product Mix​|Less Price Sensitivity​|Product Innovation Year-to-Date (Jan-Aug) 2022 Average Price % Change vs. 2019​ Sorted by ASP % Change largest to smallest YTD 2022 vs. 2019​ Source: The NPD Group/ Retail Early Indicator, NPD universe​ Inflationary Pressures As consumers emerge from their pandemic cocoons, they are also waking up to higher prices stemming from rising inflation. Although employment levels have remained strong across the U.S., shopper spending power is taking an ever-larger hit. Throughout the past year, consumer demand and spending have for the most part managed to maintain parity with pre-pandemic levels; however, with food costs edging higher, interest rates and the overall cost of living rising, and discretionary retail unit sales weakening, there may be a reckoning ahead. In fact, a recent NPD omnibus survey showed 78% of consumers expect to spend the same amount or less on holiday gifts this year compared to last year. Will Inflation Impact the Holidays?​ Despite higher prices, just over 50% of consumers plan to spend the same or more this holiday season. However, 43% are planning to spend less.​ How will the higher prices impact your upcoming holiday purchasing compared to year ago? Q. How will the higher prices impact your upcoming holiday purchasing compared to year ago? Base: Total Respondents 1,023 Elongated Shopping Seasons Continue The back-to-school shopping season offers a preview of how consumers might respond this holiday shopping season. Given the consistent flattening of retail peaks during the holidays so far in 2022 (see Easter, Mother’s Day, Father’s Day, and Back-to-School), retailers and manufacturers should prepare for an even more elongated holiday season this year. Consumers will still spend, but retailers will need to find effective ways to get them to start making their lists and shopping for gifts even sooner. “Holiday promotions from major retailers will start in earnest in October this year, which will start the countdown to Black Friday, Cyber Monday, and Christmas,” said Marshal Cohen, NPD’s chief retail industry advisor . “One lesson we’ve learned from these early holidays is that the effectiveness of promotions has shifted. Retailers are trying to create a sense of urgency to entice consumers, but it’s not resonating with shoppers the way it has in the past. Without that strong promotional enticement, people will continue to buy at times that suit them, rather than on retailers’ schedules.” Dollar Trends: Year to Date​ Weekly Dollar Volume Trend ($B) ​ Week Ending January 12, 2019 – through Week Ending September 17, 2022​ Discretionary retail includes the following industries: accessories, apparel, auto parts, beauty, consumer technology, DVD/Blu-ray, footwear, housewares, juvenile products, office supplies, small appliances, sports equipment, toys, video games Source: The NPD Group/Point-of-Sale First Read Data, limited release​ Holiday Shopping Expectation s Retailers and manufacturers should prepare for an elongated holiday season with consumers shopping prudently to account for higher retail prices. Compared to last year, 43% of respondents indicated they will spend less this holiday season due to higher prices. Of respondents who feel their shopping will not be impacted much, nearly 50% indicatedthey will seek more sales compared to last year. More than 50% of respondents who don’t see their shopping impacted due to higher prices are likely to start shopping early this season to get the products they want. Expert Pre-holiday Roundup Read on for early views of the upcoming holidays from NPD industry advisors … Joe Derochowski Vice President, Industry Advisor, Home and Home Improvement Here’s the main takeaway for home product retailers looking ahead to the holidays: While gift giving is important, it’s not the only thing driving sales during the holidays. One big behavior change we’ve been tracking in home products is the return to indoor entertaining. Due to the pandemic, it’s been nearly three years since indoor holiday entertaining was big in the U.S. — even as recently as last year, the omicron variant made indoor entertaining a dicey proposition. But this year, people have gotten more comfortable bringing friends and family into their homes, so consumers will again invest in serveware, beverageware, and other home-entertaining standards. There’s an added bonus for the holidays this year, with Prime Day and other large-scale promotional events from retailers scheduled again for mid-October. People who like to buy on promotion tend to start shopping early, which means Black Friday promotions could be adversely affected by these earlier promotions. Like last year, we can also expect lots of last-minute shopping, especially for high-quality products in the personal care category (e.g., massagers, electric toothbrushes, etc.). Although there might be fewer unit sales overall this year, higher prices mean sales revenue will most likely track similarly to, or even higher than, last year. Juli Lennett Vice President, Industry Advisor, Toys All signs point to Amazon launching another Prime Day promotion in October this year — and other large retailers will no doubt launch their own early promotions. That means the holiday season would kick off earlier, in a more impactful way, than last year. The fact that Christmas Day falls on Sunday, one day later than last year, is another bonus for the toy industry. The last time that happened, the final holiday shopping week led to an increase of 28% in toy sales, which translated to almost a half-billion dollars in growth. Retailers did not have enough inventory for the holidays last year, so there has been a lot of up-front buying this year. Retailers have already made their bets on the holidays and want to see the inventory flow out, and these October promotions help them do just that. Getting shoppers in early means there’s less pressure to promote in November and December, and a longer shopping runway could lead to more spending throughout the holiday season. In addition, our data tells us that consumers from lower-income households are more likely to be last-minute shoppers so, that, combined with Christmas Day moving to Sunday, means toys could still experience strong growth as late as the week before Christmas. Kristen Classi-Zummo Director, Industry Analyst Spending on apparel this holiday season will shift to reflect what consumers truly want and need versus categories that are “nice to have.” In a recent poll, 78% of consumers reported they have cut back or plan to cut back on spending as a result of inflation. Over half (52%) cited apparel as an area where they will reduce their spending. This pullback on apparel was evident during this year’s back-to-school season. As of September, two-thirds of parents still had not purchased all their children’s back-to-school apparel and footwear items for the season. One-third had not bought because they simply did not need to, and 15% did not have the budget to spare. Kids have been getting away with wearing their summer clothes during the first warm weeks of school, as parents dedicated more of their back-to-school budget to supplies and other higher-priced necessities. We anticipate seeing similar behavior during the upcoming holiday season. As prices rise on everything from decorations to dining, apparel categories that were heavily replenished last year, like active and basics, might be challenged during the holidays. The exception to this pullback will be dresses, blazers, and other dressier categories. As gathering with friends, family, and colleagues will be at the top of to-do lists for the holidays, we expect the growth we’ve been seeing in “dressing up” categories to continue throughout the rest of the year. So far this year, categories have been less reliant on promotions, as non-promoted sales continue to grow. We’ve also noted higher growth in national brands compared to private label. As prices continue to rise across the board, the apparel industry needs to be laser focused on what’s driving consumer demand during the upcoming season. Expect hot brands, new trends, and wardrobe needs (like going to events and a change in weather) to drive consumers to spend on apparel. For many categories, consumers are being clear and deliberate with their spending — either they want it and they’ll buy it, or they don’t and they won’t. Larissa Jensen Vice President, Industry Advisor, Beauty When looking at unit performance across the 14 discretionary retail industries we track, only prestige beauty is posting growth. Part of the reason is that beauty has had one of the lowest average price increases, but another key factor is beauty consumers themselves. The majority of our shopper base is higher income, earning over $100K per year. This consumer segment has grown; plus, they are less likely to feel the pinch of inflationary pressures. In many ways, this dynamic has kept the prestige beauty industry somewhat insulated from negative economic headwinds this year. Consumers continue to indulge in prestige beauty, particularly during retailer promotions, which are especially prominent in the fourth quarter. Beauty sales have traditionally clustered around the last few weeks of the holiday season, with categories that lend themselves to be more last-minute gifting options for many consumers. Fragrance, as an example, famously enjoys its biggest spike in holiday sales the week before Christmas, regardless of when holiday sales started. So an elongated holiday season might only serve to add incremental revenue into the industry. Due to the anticipated increase in promotion in the last quarter, and the consumer spending trend observed during promotional periods, we are optimistic the upcoming holiday season will be strong.  Looking ahead to 2023, while our industry remains somewhat insulated, at some point spending might slow down, as the consumer need to replenish or treat (which has been the hallmark of the past two years) leaves them with an overabundance of product. #Holiday

We have entered the new defining point for retailing. Success now means paying closer attention to the trends related to how customers spend and shop in the face of the rising cost of living, new promotional baselines, and stagnant innovation. Although U.S. retail pricing has stabilized a bit, and as fuel prices subside from their 2022 heights, continuing conflict in spending priorities between food and general merchandise should not be underestimated. “Consumers’ mindset is that we are either in a recession or preparing for a recession, so they are already deploying a recessionary posture toward discretionary purchases,” said Don Unser, president of general merchandise retail thought leadership . “Shoppers have been prioritizing, and will continue to prioritize, services and food over general merchandise items.” One of the bigger stories to watch this year is employment — generally, and in the retail world. It’s clear the retail industry in 2023 will be planned downward from 2022, as retailers start to hire fewer people and look for ways to tighten their fiscal belts. “It will be a tougher year from a growth perspective, and business leaders will focus more on maximizing profits than pushing volume,” said Marshal Cohen, chief retail industry adviso r. “Retailers and manufacturers will both deal with the effects of stagnant product innovation and a paradigm shift in how, when, and how much products are promoted.” Retailers and manufacturers are looking ahead to 2023 — charting a new normal for retailing as older, unworkable standards and models get renovated or packed away. Read on to see how our industry experts perceive the road ahead. Maximizing the Opportunity with Minimized Apparel Spending Kristen Classi-Zummo, Industry Analyst, NPD After the past two years of unbridled consumer spending, the apparel market will need to develop a more defensive strategy in 2023, in the wake of a more cost-conscience consumer. Creating the right value proposition and understanding how core categories will play into this will be key to maintaining market share. For example, consumers may not be able to splurge on a new outfit for an event this year, but think about “micro-upsell” opportunities: Could a cardigan or belt work with last season’s best-selling dress to make it feel fresh? Maximizing usage occasions and highlighting versatility and value will be winning purchase motivators for a more careful consumer. Other issues. We can expect continuing excess inventory in the first quarter of 2023. Consumers will still buy apparel, but consumers’ needs will outweigh the “nice to have.” Inflation. Continued inflation in CPG, grocery, and other essentials will lead consumers to spend less on apparel. During the first nine months of 2022, apparel sales revenue remained high, even though demand was cooling. That higher spending will be tough to reprise in 2023, as inflation cools and demand remains soft. Employment insecurity. Based on early economic indicators, we can expect to see some corporate layoffs in the first quarter and a bit of a spending pullback overall. From Accessories to Necessities Beth Goldstein, Industry Analyst, NPD U.S. accessories categories will be challenged this year to regain share of consumers’ wallets amid shifting priorities, but opportunity does exist. There is still headroom for travel goods to return to pre-pandemic unit sales levels. Function and fashion in bags and luggage go hand in hand, across all price points, so messaging and storytelling that showcase features and benefits will remain important.  Luggage sales revenue has risen well above 2019 levels., but unit sales are still down slightly. New travel behaviors will provide opportunities for continued growth. Handbag category salesremain soft. Even the luxury business has slowed, demonstrating it is not immune to macroeconomic pressures. The accessories channel landscape is changing as direct-to-consumer (DTC) gains share. In addition, social media will continue to be a strong purchase influence. Beauty’s Resilience Has Layers Larissa Jensen, Industry Advisor, NPD NPD forecasts overall industry growth for the U.S. prestige beauty market over the next several years. This will be driven in part by consumers who continue to indulge. The past year taught us the beauty industry is resilient. The most successful businesses will leverage best practices from winning markets, recognize and adapt to changes in the macro environment, and connect with consumers in new and unique ways. Regardless of whether consumer confidence was up or down, prestige beauty growth remained strong. The factors supporting this phenomenon — including higher income consumers, the redefinition of wellness, and an increase in socialization — will continue to fuel positive performance this year. About half the U.S. prestige beauty shopper base earns over $100,000 per year. These consumers are less likely to cut back on spending during challenging economic times. If these higher-income consumers remains less affected by the economy, they should maintain their indulgent mindset into 2023, which will benefit higher-end beauty sales. While physical wellness remains important, consumers are focusing on their mental wellness more than ever before. This shift began in 2020 and has only accelerated since then, contributing peripherally to the sales of beauty products. There are very few industries outside beauty that are better positioned to meet consumers’ emotional needs. Some challenges of the pandemic remain, but its impact has been minimized in consumers’ minds. As we move further away from the shock of 2020, we will settle into more normalized behaviors. This will include going out and gathering with each other, which should lead to increased beauty sales.  Books Can Expect Plot Twists in the Next Chapter Kristen McLean, Industry Analyst, NPD After two record-breaking years, the U.S. book publishing market will enter a period of major adjustment in 2023. While adult fiction and other areas of the market were strong in 2022, overall purchasing slowed, and some high-value areas, including new adult non-fiction titles, significantly underperformed expectations. As consumers cut back on spending, there are few strong signals about what content areas will be compelling in 2023. Cost reductions, strategic pricing requirements, and only wanting “sure bets” on the shelf all will be likely outcomes of a consumer pullback in book buying. As a result, innovation and delight may be harder for consumers to find on bookshelves in the coming year. New sales boosters, like #BookTok and page-to-screen adaptations on streaming media apps, will remain strong. The market will favor companies that innovate, and we will see those companies gain share in 2023. Footwear Will Need to Keep Pace with Changing Demands Beth Goldstein, Industry Analyst, NPD This will be a reset year for footwear. After three years of ups and downs, which varied by category, channel, and brand, sales and price trends will level out as consumers settle into their now-familiar pandemic-era lifestyles and continue to grapple with macroeconomic pressures. As they make choices about their must-haves versus their nice-to-haves, brands and retailers will look to clear excess inventory, setting themselves up for tighter assortments moving forward. The return to workplaces, socialization, and other activities that propelled the more dress-oriented categories in 2022 will have less impact this year, shifting demand toward more casual, but versatile, items. The athleisure business will remain important, but it will continue to face headwinds. We’ll see this in shifting market dynamics and the popularity of some key brands and products in both the casual fashion and performance athletic space that have similar end uses. Footwear online penetration settled in at 40% of sales in 2022, in line with 2021, and 10 points higher than pre-pandemic. This is not expected to change materially in 2023. Foodservice Gets Its Crave Back  David Portalatin, Industry Advisor, NPD Foodservice recovery in the U.S. should resume in 2023, as consumer mobility and demand for experiences returns. Foodservice operators that can provide “craveable” eats that offer variety and quality at an affordable price point will gain momentum this year.  Quick service restaurant (QSR) unit counts have recovered to their pre-pandemic levels. Demand for convenient, on-the-go meals at value price points will allow QSR share growth to continue. Morning meal daypart traffic has fully recovered as time-crunched morning routines have made breakfast on the go a good value proposition. Non-commercial recovery is gaining momentum in sectors such as lodging, recreation, and business and industry as consumers resume some of their pre-pandemic work and travel behaviors. Food and Beverage Variety Will Entice Diverse Appetites Darren Seifer, Industry Analyst, NPD Inflation pressures in 2022 forced consumers to seek lower-priced food and beverage items to mitigate rising costs. However, prices are starting to stabilize, which should give consumers more predictability to manage their grocery spending. Even if prices remain elevated, people might feel more confident about spending on mainstream and premium items. We saw a similar shift around 2009, following another period of higher inflation, when consumers experienced “frugal fatigue” that led them back to familiar brands. Convenience will continue its rise as more consumers leave their homes daily. Look for strength behind frozen and quick-to-prepare meals to meet their needs. While off its pandemic high, remote working remains at more than twice the level it was in 2019. This puts consumers near their pantries more often and will keep the number of in-home sourced meals elevated. Those doing hybrid work will have varying convenience needs and, as they account for their commute times, workers will pivot between more complex and quicker meals. Marketers should provide offerings for various income groups. If prices remain high, lower-income consumers will still feel the pinch and will continue to source more meals from home, use leftovers, and switch brands. Middle- to higher-income consumers should show signs of recovery, buying more mainstream and premium brands. Consumer Packaged Goods (CPG) Pricing Will Continue to Disrupt Consumer Behavior Dr. Krishnakumar “KK” Davey, President of Thought Leadership for CPG and Retail, IRI and NPD Even with inflation easing, it will remain stubbornly high compared to historical standards. This will cause ongoing consumer demand shifts with lower unit and volume sales as consumers look to curb waste and shop smart. Consumers will see increasing promotions, which will provide some relief from inflationary pressures, but the depth of promotions won’t match pre-pandemic levels. They also will seek savings by shopping value and club stores. Shifting to private-label offerings is yet another way they’ll combat higher prices. At the same time, the market will continue to bifurcate: Some consumer segments will purchase premium-priced goods that are differentiated and offer superior benefits, and others will seek the occasional splurge to elevate an occasion. Home Is a Haven Consumers Return To Joe Derochowski, Industry Advisor, NPD This will be the year of recalibrating, restructuring, and reprioritizing. Consumers will start to re-calibrate their spending, shifting from the carefree pandemic-lifestyle spending to focus on managing inflation and other economic concerns. This shift, along with comparing against the brisk sales enjoyed during the height of the pandemic period, will result in sales declines for many housewares and home improvement categories in 2023. Consumers will restructure how they spend their time. They will start to settle into a more structured life that still leans toward a home-centric lifestyle. Eventually, this home-centric lifestyle will create a need to replace and upgrade products purchased during the early months of the pandemic. Manufacturers and retailers should invest in product innovation and marketing to meet consumers’ “new normal” needs and inspire them with new solutions. Consumer Technology Struggles Give Way to Selective Growth Paul Gagnon, Industry Advisor, NPD After a challenging year for the consumer technology market in 2022, following two very strong years of growth during the pandemic, challenging economic conditions will again pressure spending on tech products in 2023. Replacement cycles for many technology products extend at least three years, and sometimes up to seven years. The wave of device replacements related to pandemic-driven upgrades won’t begin until later in 2023, but more likely in 2024 and 2025. There are areas of the market where growth looks likely this year, especially if manufacturers can introduce innovative products that have been somewhat lacking during the pandemic. TV unit sales are likely to grow by low single digits as prices become more affordable at all sizes. Home streaming video entertainment typically provides good value for consumers in an otherwise challenging economy. While the overall computer category will continue to be pressured in 2023 due to the massive surge in demand in 2020 and 2021, the Chromebook market might start to see some growth again at the most affordable end of the computing spectrum. Home automation products grew in 2022, even after strong demand during the pandemic, and that trend should continue in 2023. More affordable models will be coming to market. There will be an expansion of products using the new Matter smart-home standard. Mobile Devices Face Immobilizing Headwinds Brad Akyuz, Industry Analyst, NPD The smartphone market’s momentum stalled in the fourth quarter of 2022 due to supply challenges. This has given U.S. mobile carriers the perfect excuse to scale back on device subsidies, especially when it comes to upgrades. This shift in the promotional narrative will take its toll on smartphone volumes and revenues in 2023, because smartphones upgrades, especially in flagship models with hefty price tags, are highly dependent on mobile carriers’ level of subsidy generosity. Two-thirds of all smartphones are sold directly through mobile carriers. The Federal Reserve’s ongoing rate hikes continue to increase the cost of postpaid carriers’ device financing programs (that range between 24 to 36 months), thus lowering their subsidy generosity. The four-year trend of prepaid-to-postpaid migration will slow down and possibly reverse in 2023. Economic headwinds will force financially challenged consumers to seek cost-cutting service downgrades, instead of pursuing upgrades. Cable mobile virtual network operators’ (MVNOs’) aggressive pricing on mobile/cable internet bundles, coupled with the emergence of new low-cost service providers, will ignite race-to-the-bottom pricing wars, which the consolidated U.S. mobile market has remarkably avoided for years. Anticipated declines in service revenues will limit carriers’ subsidy amounts on smartphones. Cable MVNOs’ bring-your-own-device (BYOD) business model is another inhibiting factor for new smartphone sales. B2B Technology Sales Temporarily Tempered Mike Crosby, Industry Analyst, NPD While B2B tech sales experienced strong unit and revenue growth in 2022, inflation emerged as a significant headwind. Costs for raw materials, manufacturing, and labor rose to nearly 40-year highs. To combat rising inflation, the Federal Reserve tightened monetary policy to help cool an overheated economy with the hopes of bringing inflation down to more acceptable levels. These policy changes, along with continued higher inflation levels, are expected to temper business technology investment in 2023. While overall corporate budgets are expected to be under pressure in 2023, information technology (IT) investment is expected to remain the same or even increase, because technology continues to be viewed as a critical necessity to increase productivity. Midsize and enterprise companies will continue to make investments; smaller businesses will likely see lower levels of investment, as ongoing financial pressure and lingering inflation complicate the existing supply-chain and labor challenges they face. The IT investment mix will continue to shift away from hardware to software, cloud, and managed services in 2023. Hardware represents the majority (58%) of anticipated IT spending, but software, cloud infrastructure and managed services will continue to grow, though this growth will be more muted than it was in 2022. Average selling prices are also expected to normalize, as price declines will lag cost improvements seen upstream. Big improvements in economic conditions are anticipated in 2024 and 2025, with inflation nearing target levels and the supply chain operating in a more predictable manner. B2B tech demand is expected to accelerate, driven by overall economic expansion along with a significant technology refresh for client devices that were deployed early in the pandemic. Toys Need to Excite the Big Kids Juli Lennett, Industry Advisor, NPD Like last year, 2023 will bring about bright moments and deep groans. With a more significant theatrical calendar this year compared to the last three years, the U.S. toy industry will be poised to enjoy the fruits of several tentpole movies. However, if inflation and other adverse macroeconomic factors linger later in the year, or become worse, we can expect to see families pulling back on the number of toys they purchase or trading down to lower price points. The first three quarters will face challenging comparisons; increases in average selling prices drove revenue gains last year. With Easter falling in early April this year, the first quarter will benefit the most from those Easter purchases and put added pressure on the second quarter. Outside the economic factors, losing the “kidult” consumer (aged 12 and older) is possibly the largest threat the U.S. toy industry faces this year. Kidults were the largest segment for toy sales — they were responsible for most of the growth in the year ending September 2022. About one-quarter of toy sales, or $9.3 billion annually, are purchased for the kidult age group. More importantly, this group represented $1.7 billion in sales revenue growth, which was 58% of the growth in the last year.  This growth in kidult sales has been a huge windfall for the toy industry, particularly for categories like building sets, plush, action figures, and sports trading cards. If this group of toy consumers loses interest in toys, it would have a significant impact. Manufacturers will need to dig deep with the right products and strategies to keep this train running.   Video Games Play On, Looking to Beat the Next Level Mat Piscatella, Industry Analyst, NPD The U.S. video game market is poised to return to its long-term trend of sales and player engagement growth. Improved supply of new-generation hardware, such as the PlayStation 5 and Xbox Series consoles, a highly anticipated slate of new premium games, and improved demand for accessories, such as gamepads and headsets, could combine to make this year a very special one for the industry. The market also has several developing segments, such as VR/AR/XR, cloud, and subscription services, that may provide additional growth opportunity. How high is the ceiling for PlayStation 5 and Xbox Series consoles? Although supply improved throughout the fourth quarter of 2022, constraints remained a challenge, limiting overall sales potential. When full supply is achieved, this generation might set new sales records. Which new video game releases will reach blockbuster status? The pandemic’s onset proved challenging for video game development, leaving the 2022 slate of new releases lighter than most years. With the many games delayed into 2023 joining those already planned, it could quickly become a very competitive and exciting market. Will improved console supply and the upgrade cycle bring accessories back to growth? Sales of headsets, headphones and gamepads, and other video game accessories surged in early 2020. Players now may look to upgrade these accessories, joining new hardware adopters to potentially boost overall sales. Office Supplies Holds Steady with Normalizing Consumer Lifestyles Tia Frapolli, President, Office Supplies, NPD U.S. office supplies industry revenue in 2023 is expected to decline 1% year over year but remain 7% above pre-pandemic (2019) sales (excluding storage categories as well as janitorial and breakroom supplies). In fact, industry revenue should remain above 2019 totals through 2025,shown by our Future of Office Supplies report.. Continued innovation will be key to uncovering opportunity in the office supplies industry. Evolution related to product features, creative product use-case methods, and category revitalization through new designs or target market segments will help drive category growth. While the effect of new technology on office supplies sales is often viewed as a concern, three-quarters of consumers plan to purchase the same or more supplies this year, despite the growing use of technology. This NPD survey finding indicates unit sales for school supplies should remain relatively stable over time. Unit demand could return to the office supplies industry this year, as in-person learning continues to grow. Last year, some school districts provided additional funding to purchase supplies for classrooms and/or student needs, which could have affected retail unit sales of school supplies during the peak period of the back-to-school season. The industry might see unit demand return this year, as teachers increasingly rely on the school list to fund the classroom. The work-from-home and hybrid consumer segment home-office setup activation has begun to normalize. Future growth will come from either replenishment or through identifying new workers who are likely to be in industry verticals that have flexible-work philosophies. Automotive Aftermarket Sales Show Resilience Nathan Shipley, Industry Analyst, NPD The retail automotive aftermarket as resilient throughout the pandemic; more consumers turned to their garages for do-it-yourself projects. This was coupled with the freedom car ownership provides — families turned to their personal vehicles to take road trips near and far. Others bought RVs, boats, or other motorized equipment for recreation. The aftermarket benefited as a result.  More recently, while topline dollar sales have remained positive, unit sales have declined as pre-pandemic behaviors have reemerged. Separately, higher gasoline prices have impacted spending on vehicles.  Product pricing has been a very hot topic: The aftermarket is at the top of the list of our tracked industries when it comes to average price increases.  The average increase this year has been over 15%, with the most recent weeks up almost 20%.  This change has been driven by numerous factors from the merchandising and consumer perspectives, including inflation, promotional and mix changes, new assortments, and other factors.

CHICAGO, October 12, 2023 – Circana , formerly IRI and The NPD Group, today announced that Profiles in Diversity Journal has named Larissa Jensen, senior vice president and global beauty industry advisor, to its list of 2023 Women Worth Watching in Leadership®. In its 22nd year, the annual awards program is designed to acknowledge dynamic women around the world who exhibit dedication to their careers, families, community, and the young adults who they often mentor in their fields. Spanning more than two decades, Jensen’s extensive beauty experience and passion for the industry provide a solid framework for her role as a strategic advisor and recognized expert in the skincare, makeup, fragrance, and hair markets. Working with emerging and established beauty brands and retailers, she successfully translates sales and consumer data into easy-to-understand narratives that showcase valuable insights and reveal high-potential business opportunities. She is an adjunct professor and advisory board member for The Fashion Institute of Technology (FIT) graduate program in Cosmetics and Fragrance Marketing and Management, and on the board of advisors for Cosmoprof North America. “Larissa’s knowledge, passion, and charisma shines in her ability to connect the dots and surface fresh perspectives to exceed the needs of Circana’s beauty clients,” said Lori Monaco, president of the U.S. beauty practice at Circana. “She is a true role model, demonstrating that anything is possible personally, professionally, and academically. To many, Larissa is always a woman worth watching. Congratulations to Larissa and all the inspiring women recognized.” The Women Worth Watching in Leadership list is featured in Profiles in Diversity Journal ’s September issue . It includes insights for advancing women in the industry from each of the honorees.