The Supply Side: Holiday sales expected to exceed $1 trillion for first time

Consumer spending between Nov. 1 and Dec. 31 on holiday gifts is expected to exceed $1 trillion for the first time in history, according to the National Retail Federation.

Sales are forecast to grow between 3.7% and 4.2% over last year. The figures are not adjusted for inflation and are in line with historical growth levels outside of the pandemic years.

“American consumers may be cautious in sentiment yet remain fundamentally strong and continue to drive U.S. economic activity,” said NRF President and CEO Matthew Shay. “We remain bullish about the holiday shopping season and expect that consumers will continue to seek savings in nonessential categories to be able to spend on gifts for loved ones.”

The trade group expects 91% of consumers plan to celebrate the winter holidays. At $1.01 trillion, that equates to an average of $890 per household for gifts and other seasonal items, according to the trade group data. Families with children plan to spend $33 more on average for gifts this year.

Toy prices are among the categories greatly impacted by tariffs. According to the U.S. Bureau of Labor Statistics, toy prices rose 1.8% following President Donald Trump’s tariffs. In the first half of this year, U.S. toy sales increased 6% year over year, with 3% more units sold, according to a report from Circana. The increase in sales related to families buying ahead of higher prices which could reduce sales during the holiday season, according to analysts.

“The toy industry is showing strength during this period as consumers are holding their breath and waiting for higher prices to kick in,” Juli Lennett, vice president and toy industry adviser at Circana, said in a press release. “This resilience is especially important as we set our sights on the holiday season and what categories are critical for the consumer to bring joy to their loved ones.”

Other categories like electronics and apparel have seen price increases because of tariffs and unpredictable trade policy.

“The economy has continued to show surprising resilience in a year marked by trade uncertainty and persistent inflation,” said Mark Mathews, NRF chief economist. “As tariffs have induced an uptick in consumer prices, retailers have tried to hold the line on prices given the uncertainty about trade policies.”

SHUTDOWN IMPACT
Aside from higher prices, another notable challenge is the federal government shutdown. Mathews said the timing was particularly challenging just before the holiday season. Delays in federal spending — even if it ends before the holidays — will result in a loss of private-sector income, further eroding consumer demand.

Shay is not too concerned with low consumer sentiment readings reported in recent months. Despite the historic low readings that date back four decades, excluding the pandemic years, he said consumers have continued to spend and power the economy forward.

“For a little more context, consumer spending currently accounts for more than 68% of our nation’s GDP, which is the highest proportion in almost 15 years,” Shay said.

Retailers have been creative in trying to keep prices down, and a lot has been due to consumers pulling sales forward. A large amount of inventory came in pre-tariff, which helped retailers hold back on price increases, he said.

“We’ve seen spending behavior that is very strong through the year, but we know that inside of that strength, consumers are being much more price sensitive,” Shay said. “And we know they have adjusted the way they spend month to month. We know there’s a great deal of price sensitivity, and so they are looking for less expensive options.”

Uncertainty remains throughout the economy, with weaker employment numbers rumbling through the end of the year. Senior economic advisor Jack Klelnhenz of the NRF Foundation likened retail sales forecasting to driving in the fog. But overall, the trade group remains optimistic that consumers will show up for the holidays.

“We’ve spent most of the year worried about the impact of tariffs on both inflation and the supply chain,” said NRF Vice President for Supply Chain and Customs Policy Jonathan Gold. “But the holiday season is here, and mitigation efforts appear to have paid off. Store shelves are well stocked, and the effect on prices has been minimized, largely thanks to retailers taking steps like frontloading imports during times of low or delayed tariff increases or absorbing the costs themselves. Consumers should be able to find the products they want at prices they like.”

EARLY START
Circana reports that 54% of consumers started their shopping earlier this season. Another 47% said they plan to start gift-buying before Thanksgiving. The marketing firm found that last-minute shoppers who plan on waiting until early December or later to start their holiday shopping are at the lowest level in four years, at 19.2%.

“Today’s consumer is more focused on planning and prioritizing on their quest for value,” said Marshal Cohen, chief retail advisor for Circana. “Getting an earlier start on holiday shopping gives them more control and choice when it comes to making a purchase decision, rather than feeling the pressure of filling a last-minute need.”

Nearly 1 in 5 consumers have their sights on Black Friday sales and are looking for the best promotions during big sales events — online and in stores. Circana reports that Black Friday was the largest shopping day recorded in 2024 with physical and digital retail. Also, 37% said promotions will have a significant influence on what they purchase this year.

Cohen said retailers have programmed consumers to watch for early sales beginning in October. While overall October sales numbers were somewhat muted this year, analysts say the anticipation of future promotional periods can trigger a wait-and-see behavior among shoppers who hold back in hopes of a better deal.

“Even with lower prices, consumers have become less impulsive — doubling down on their ‘need now, buy now’ mindset,” Cohen said. “Marketers need to continue to assess ways to achieve dynamic success with consumers by making their brand, their store, a destination that hits the mark on product and value at the right time.”

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.