Why People in High Cost of Living Areas Spend at Boxing Day Sales

Often a bargain gives shoppers the “reason” or “permission” to make a purchase that they can then rationalise later (https://lastyard.com/the-psychology-of-discounts)

Introduction

Australian Retailers Association and Roy Morgan research predict that Australians will spend $1.3bn on Boxing Day and a further $2.4bn during the last days of December.  At first glance this may seem counterintuitive  consumer behaviour during a period of high cost of living. but several other considerations suggest that this is  both  predictable and rational behaviour.

Economics has mixed views on this type of consumer  behaviour. Firstly, as prices fall demand goes up- simple!  But consumption is also a function of disposable income, which for many in the 25 years to 49 years age group has gone down in recent years, so, ceteris paribus, the normal impact of sales should be reduced in such times . In this case   the net result will be determined by the relative strength of the immediate price effect of the sale against the delayed purchase effect of the rational consumer. Then psychological factors come into play, probably more so than in most consumer decisions. This leads to a host of reasons as to why the current observed consumer behaviour is happening in Australia during the boxing day sales

These reasons include

• Psychological satisfaction
• Strategic shopping, delaying purchases until bargains become available
• Pent up consumer demand
• Segmented consumer markets: only some consumers are suffering cost of living pressures

Below these issues are examined as well as a brief examination of the psychology of hunting down bargains

Psychological Satisfaction:

Sales events provide a sense of accomplishment and satisfaction, often referred to as “retail therapy.” This can lead to increased spending during these events without significantly impacting spending habits throughout the rest of the year

Strategic shopping, delaying purchases until bargains become available

The relationship between shopping on sales days and spending habits throughout the rest of the year can vary among individuals. However, several studies and expert opinions suggest that people who take advantage of major sales events like Black Friday or Boxing Day may not necessarily reduce their spending for the rest of the year. Some shoppers use the sales to stock up on essentials or needed high-ticket items, which might reduce their need to make similar purchases in the future. In addition, sales events often trigger impulse buying due to the perceived urgency and fear of missing out  the limited evidence available suggests that these purchases take place in addition to standard shopping and do not reflect strategic shopping (https://www.stylist.co.uk/fashion/the-psychology-of-why-science-makes-you-happier-study-science-shopping-bargain-brain-happy)

Pent up consumer demand

Evidence suggests that periods of parsimonious shopping often produces break out shopping behaviour with consumers particularly vulnerable to bargain days such as Black Friday and Boxing day (Impulse buying surge: 80% of Aussies make in-store impromptu purchases – AMI

Segmented consumer markets and cost of living issues .

Australians aged between 25 and 49, typically with mortgages are most effected by cost-of-living pressures. Those without a mortgage and couples without children are not suffering these issues as much less restrained in retail spending. In 2022, 67% of Australian households owned a home, with 32% owning without a mortgage and 35% owning with a mortgage. (https://theconversation.com/more-rented-more-mortgaged-less-owned-what-the-census-tells-us-about-housing-185893

While home ownership and mortgage debt are not the only determinants of income inequality in Australia hey do provide good indicators of demographic differences in retail purchasing power. In short, those  Australian that  are not constrained in their purchases eagerly await sales. There is a shortage of data on which  segments of the population, and their respective economic situations,  make up the bulk of those participating  in the Boxing Day sales., To empirically determine this it would be necessary to examine which items are being most purchased and which demographic are doing the purchasing.  Clearco.com have conducted research on the Boxing day sales in Australia and have identified  the following demographics (Should Your Brand Launch Boxing Day Sales?)

• Gen Z (born 1997-2012): This group is highly engaged in Boxing Day sales, with a strong preference for digital shopping experiences. In Australia, 83% of Gen Z planned to participate in the 2023 Boxing Day sales

• 1Millennials (born 1981-1996): Millennials also show significant interest, with 65% planning to shop during Boxing Day sales in 2023. 1. They respond well to social media promotions and are keen on finding good deals both online and in physical stores.

• Gen X (born 1965-1980): This group tends to focus on quality products from trusted brands. While they may not participate as heavily as younger generations, they still make up a substantial portion of Boxing Day shoppers

New credit arrangements

Credit cards and bank over drafts have always assisted splurge spending but the newer forms  of consumer credit such as after pay offer seemingly cheaper ( if you met time requirements)  spending alternatives which have boosted  average consumer spending by 2-3 $% (Afterpay delivers billion-dollar boost to Aussie businesses)

Retail Strategies

Retailers in high cost of living areas are aware of the financial pressures their customers face. They strategically plan Boxing Day sales to attract shoppers by offering irresistible deals. Marketing campaigns, extended store hours, and exclusive online offers are designed to maximize consumer spending. Retailers also use data analytics to tailor their promotions to the preferences and behaviours of their target audience, making the sales even more appealing

Conclusions

In summary, economics has some difficulty in explaining why sales such as boxing day are so successful in periods of high cost of living. This It may be because economists seek rationally when, in an aggregate sense, such rationality  may not be there or at least is not defined in the standard way.  The issue of consumer behaviour during sales and the role of prevailing economic conditions is complex. It involves, purchasing power, accumulated consumer needs, marketing strategies of retailers and the psychology of consumers looking for perceived bargains.

It is often said that the sales are not really sales but a brief return by firms to cost recovery pricing in periods of excess stocks.  Items offered for sale are overstocked or out-dated items and therefore by normal price/quality considerations are not bargains at all.

Even since, the pioneering research by Sargeant Florences stressed the role of psychology in consumer behaviour, economists have known that our narrow definition of rationally, based on real price calculations are, at best, an incomplete view of consumer behaviour and in some cases, psychology outweighs price considerations  in determining rationality

So, what is the main reason for high consumer spending on sales even in periods of high cost of living.  My view, and one that is often neglected, is that of time horizon differences  Consumers who flock to the sales, even in time of economic pressure,  are still thinking rationally but in the short-term. They see an item they want at below expected price and buy it. In that moment they are not worried about external conditions or future events such potential decisions by the Reserve bank, future inflation or the probable state of the labour market but on a simple relative price decision which they then make.  This is not impulse buying in the traditional sense, but a short-term rational decision based upon relative price. It is only later when reconsidering the purchase in the light of other economic considerations they may regret it. What was rational now becomes irrational. In other words, rationally depends on the time period over which it is judged.