The Supply Side: Holiday sales growth could be lowest in a decade

As economic uncertainty continues to weigh on consumers, holiday sales in the United States are expected to grow at their slowest rate since the pandemic, according to early read reports from Bain & Co. and Deloitte.

Bain expects retail sales to grow 4% in November and December to more than $975 billion. While growth projections are positive, Bain predicts sales growth will be below the 10-year average of 5.2%, underscoring consumer caution.

The market data also indicates consumers expect to do more in-store shopping. Bain estimates in-store sales will grow 2.75% year over year, contributing 2% of overall growth. The strongest categories for growth are expected to be clothing and accessories, and general merchandise. Health and personal care are expected to grow sales at 5% or more during the holiday period.

The survey also expects electronics, appliances and furniture sales to decline from a year ago. Bain also expects online sales to account for half of retail sales this year, despite the decrease in growth. E-commerce sales are expected to increase 7%, down from 10% growth over the past two years.

“This holiday season will be a mixed one for U.S. retailers,” said Aaron Cheris, a partner in Bain’s retail division. “Consumers are cautious and facing financial pressure, but they are also feeling the lift from higher wages and a strong stock market. Leading retailers will strike the right balance — leaning into value, creating warm human experiences while implementing new technologies, and capitalizing on big events like Black Friday to capture share from competitors.”

E-COMMERCE ESTIMATES
A similar report from Deloitte predicts U.S. holiday sales to grow between 2.9% and 3.4% compared to a year ago. Deloitte pegs sales to top $1.61 trillion between November and December. By comparison, holiday sales in the year-ago period increased 4.2%, to $1.57 trillion, according to the U.S. Census Bureau.

“Our forecast anticipates that e-commerce sales will stay strong as consumers keep leveraging online deals to stretch their spending power,” said Natalie Martini, vice chair and U.S. retail and consumer products sector leader for Deloitte. “Retailers who remain focused on delivering value throughout the season have a prime opportunity to drive growth during what continues to be a critical time for their businesses.”

Deloitte expects e-commerce holiday sales to grow between 7% and 9% year-over-year, totaling between $305 billion and $310.7 billion. A year ago, e-commerce sales increased 8%, totaling an estimated $285 billion. Deloitte also estimates that disposable personal income will grow between 3.1% and 5.4% this holiday season.

The global accounting and advisory firm said that it has found disposable income growth to be a sound predictor of retail and e-commerce sales.

“Steady income growth can help offset some economic uncertainty, including any labor market weakness and the burden of high credit card and student debt on consumer spending,” said Akrur Barua, an economist with Deloitte Insights. “While elevated inflation will likely weigh on the volume of retail sales growth, it will nevertheless be a tailwind for the dollar value spent on retail purchases in the holiday season.”

CONSUMER SENTIMENT
Bain also surveyed consumers about spending sentiment this holiday season. Data shows U.S. households across income groups reported a worsening fiscal outlook in August. Bain said upper-income households, which account for 54% of consumer spending, had a slightly elevated intent to spend this year, but the outlook has gotten more cloudy in recent months.

Bain reports financial strain is increasing amid rising credit delinquencies, up 3% year over year, and reaching their highest level since 2011, particularly for consumers under 30.

Ali Furman, consumer markets analyst at PwC, expects consumers will shop earlier this year. She said it started with back-to-school and Halloween when merchandise hit shelves a full month earlier than normal. Part of the reason is that retailers bought ahead of potential tariffs and stocked stores earlier. Furman said inventory pull forward incurs additional warehousing costs. The sooner retailers can get the products on shelves, the better revenue potential. She made those comments in a recent holiday forecast webinar with Retail Dive.

She said retailers are testing price elasticity with value-oriented consumers by putting seasonal inventory on shelves earlier. For instance, Halloween items go on the shelf at full price earlier in the season, allowing retailers to test and learn. They will lower prices a bit closer to the actual season, like they did with back-to-school and sales velocity will increase.

TARIFF IMPACT, GENERATION Z
Coresight Research reports 32% of consumers are looking to buy products ahead of time this holiday season.

“About 76% of them have said tariffs,” Matt Pavich, senior director of strategy and innovation at Revionics. “It is the reason they are shopping earlier, and it makes sense. I think retail has done a decent job in the early half of the year, because a lot of the products they were selling were pre-tariff. And now we’re getting into the season where the tariffs are starting to take effect. We’re seeing that in the pricing and a lot of these pull ahead sales.”

Pavich said during the Retail Dive webinar that the pull-forward could lead to an interesting second half of the year, in terms of lower overall sales for retailers.

Furman said PwC research indicates consumers plan to spend 5% less on holiday than they did last year. It is the first time since the pandemic in 2020 that spending expectations are lower, she said.

“Most of the generations we surveyed, including millennials (ages 29 to 44) and Gen X (45 to 60) plan flat spend year over year, but baby boomers (60-79) are actually planning slightly more spend,” she said. “And it’s Gen Z (ages 18 to 28) that is planning the biggest pullback — 23% less spend year over year.”

She said Google searches for discount and coupon codes are up 11% year over year. She said Gen Z consumers have unique expenses this year, with some starting families, some paying student loan debt and overall facing a higher employment rate than other generations.

Pavich said Gen Z is going to be a critical part of the holiday season. He said the past two holiday seasons were re-setting the norm after the post-pandemic spike in retail sales. He expects consumers will continue to be deal conscious and spend where they find best values between now and the end of the year.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics, and is sponsored by HRG.