Struggling to find this holiday season's 'it' gift? So are retailers

Every year for Black Friday, people rush to stores to buy the hot new gift. But this year, nobody seems to know what the "it" item is.

There isn't a new game system that just dropped. The latest smartphones came out months ago. Nothing stands out on the toy scene.

What's more, people who weren't able to travel or eat out during the pandemic may not want to spend on gifts this holiday. Others simply don't want more stuff after filling their houses the last two years.

"Every Christmas season literally the wild card is the hit product," said George John, a marketing professor in the Carlson School of Management at the University of Minnesota. "Maybe it's the hit movie. Maybe it's the hit toy. Maybe it's the hit video game. ... Something pops up and then everybody comes out to see it. They want to see other people in it. It creates its own wave if you will. I don't see it this year."

The uncertainty of what shoppers will gravitate to is another challenge for retailers at a moment when high inflation is already leading some people to rein in their spending.

For Minneapolis-based Target, which had strong holidays the last two years as people clamored for home items and electronics, this season is a big question mark. Executives last week forecast a rare sales decline this holiday period, citing a rapid pullback by consumers in October.

Without a firm sense of must-have items, the pressure is even higher for retailers to differentiate themselves with promotions for Black Friday, Small Business Saturday and Cyber Monday.

Ben Thompson, co-owner of the Scout apparel and gift shops in St. Paul and Edina, tries to keep it simple as he and his husband and business partner, John Thompson, prepare for the holidays. This year they stocked up on jackets, fleece pullovers and "shackets" (shirt jackets) because outerwear was a popular seller last season.

"They might want to have something that's layerable, fashion forward when it's above zero," Thompson said of his Twin Cities customers.

For the first time this year, Thompson is planning a queer holiday market with several other vendors to give those within or supportive of the LGBTQ community another avenue to shop. In addition to helping make his customers feel extra special, Thompson also plans to give out small gifts with each of his sales on Small Business Saturday.

"I don't think people expect it. … The gift is just a pleasant surprise," he said.

Most holiday shopping forecasts show that U.S. consumers will likely spend more this season compared to last year, though right around the rate of inflation. The National Retail Federation said holiday retail sales during November and December will grow between 6% and 8%.

Demand has softened for many of the categories that were popular during the pandemic such as home goods. Last week as part of its earnings announcement, Target said even its toy sales were down this fall despite early holiday promotions.

"We spent two years nesting and retail boomed because everybody outfitted their home office but also upgraded and elevated all of their homes," said Toopan Bagchi, founder and managing director of Twin Cities retail consultancy Starship Advisors.

"All of the things that they would have wanted for their home they have kind of done," Bagchi said. "You got the Instant Pot. You got the air fryer. Like how many more things can you fit in your kitchen?"

Consumers are also dealing with high prices and are more deliberately looking for a good value and caring less about particular brands and store names. Nearly half of U.S. survey respondents say they would switch stores if they found a better price elsewhere, according to a recent survey by McKinsey & Co., the consulting firm.

"Consumers are just going to have a really high bar for the deal and the value in terms of what they expect to get and what they want to see," said Kelsey Robinson, a senior partner and retail expert in the San Francisco office of McKinsey.

Another cause for the lack of a standout product is likely also because more people are focusing on experiences like traveling and eating out now that many of the fears about the coronavirus have subsided. According to McKinsey, the number of people who say they plan on traveling to see friends and family over the holidays increased by 12%.

The open-ended nature of this season's giving could be more of a gift than a curse for retailers and consumers, some experts say.

"It gives retailers the flexibility to define gift-giving opportunities across multiple categories and adjust strategies [and inventory] accordingly," said Carol Spieckerman, president of Spieckerman Retail. "Retailers and brands benefit from a more dispersed demand pattern. It can be exciting when everyone is competing to win on specific items, but it also creates chaos and disappointment. Far better for retailers to remain in control of the narrative."

Retailers can lean heavily into emerging consumer trends such as a mass merchant showcasing luggage or revamping the area where they sell travel-sized personal care items to appeal to customers who want to travel, Bagchi said.

Consumers can also choose to give more nontraditional gifts that are experiential, like museum memberships, coffee or wine subscriptions and lessons in photography or cooking, he said.

There might also be more homemade gifts or simply people focusing on spending time with those they care about.

"I think it's going to be a very human holiday," said Jill Standish, global lead in Accenture's retail industry group.