Deloitte’s annual holiday retail forecast shows consumers retreating to pre-pandemic levels of shopping — but one expert explains why that’s not necessarily a red flag.
The company forecasts holiday retail sales will rise between 2.9% and 3.4% for the spending time frame from November to January, it said in its latest holiday retail forecast released Wednesday. It projects sales will total between $1.61 trillion and $1.62 trillion.
Last year during the same time frame, retail holiday sales grew at a faster rate of 4.2% and garnered $1.57 trillion, Deloitte said, citing the U.S. Census Bureau.
Deloitte’s forecast is consistent with a recent PwC holiday report that found that more than 80% of surveyed U.S. shoppers said they plan to reduce their seasonal spending over the next six months for the first time in five years.
Brian McCarthy, Deloitte’s retail strategy leader, told Quartz there are two ways to look at this data based on historical averages.
“You could say this is the slowest growing holiday season since the pandemic or, what I think is more the story here, is this is more in line with historical holiday growth,” McCarthy said. “We saw before the pandemic where the 3.3% growth was pretty common in 2015, 2016, 2017, 2018, [and] 2019.”
He added that during the pandemic, shoppers had fewer options to “spread their holiday spend.”
“We were asked to stay home and people leaned into physical products and purchasing to celebrate the holidays,” McCarthy said. “Before that, we saw a much wider breadth of spend across a number of categories, products, and services. And so I see this as sort of us slowly coming out of the pandemic, learning how to shift our behaviors and spends back to more historical ways of shopping.”
Although holiday sales rates might be falling back to historically normal levels, McCarthy still notes that this is “going to be quite the unique holiday season.”
This year consumers have a lot working against them. Inflation is still high, Trump’s parade of global tariffs are increasing the cost of goods, and the labor market is stalling, moving the market towards possible stagflation .
“Inflation is probably the one that’s going to hit the most because the cost of an item is higher than it has been historically,” McCarthy said.
He added that inflation has played a “little bit of a tailwind and a headwind,” adding that “with the cost of goods higher, that pushes the nominal spend a bit up for the same products purchased, but it makes those items more costly. So consumers may be buying a little bit less from a unit perspective.”
The producer price index has grown at a slightly faster rate than the consumer price index, McCarthy said, which means retailers are incurring higher costs for goods but haven’t pushed all of that incurred cost over to consumers yet.
“The thing that we’re paying attention to is for how long can brands and retailers absorb some of those increased costs of products before they need to increase the prices?” he added.
Akura Barua, an economist for Deloitte Insights, said in the release that Deloitte expects disposable personal income — a major predictor of retail and e-commerce sales, according to Deloitte — to increase between 3.1% and 5.4% during this time frame.
McCarthy notes that consumers’ estimated DPI is higher than the projected retail holiday sales for the season, indicating shoppers “may not be putting all of that growth in their disposable income into gift giving.”
In a back-to-school study published in July, Deloitte found that more consumers were thinking about placing orders for the holidays during promotional events in mid-July, McCarthy said.
“When we track holiday spend, we typically focus on that November to January timeframe, but it also needs to account for the fact that holiday shopping this year may have actually started in July when people took advantage of those bigger promo events,” he said, adding that the trend of consumers buying earlier in the year is likely to stick around.
“Part of the idea of some of these promotional events was to sort of encourage increased spending during an otherwise quiet time period,” McCarthy said. “But what consumers see is this is a meaningful promotional event where I can get good products for good prices.”
“The reason I think that they’re going to continue to spend earlier is less about people trying to spread their budget out further across the year, but more that these value seeking consumers are being much more savvy and thoughtful about when they can get the right product for the right price,” he added.
In another repor t from July, Deloitte found that “a significant number” of retail buyers said they were placing their holiday orders one to two months earlier than they have historically, McCarthy said.
“Part of the reason for that is they were trying to get ahead of what they expected to be increased costs for products factoring in all of these additional forces,” he said, adding that if retailers bought “well into” their inventory for the holidays then “there’s going to be a good opportunity for consumers to get good prices and promos.”
Larger retailers are in the “best position” to offer better promotions and deals in part because they have “the largest inventory positions and cash reserves to really make sure that they’re aggressive and competitive,” McCarthy said.
E-commerce sales will be a big driver of this year’s growth with projected growth between 7% and 9% year-over-year, totaling between $305 billion and $310.7 billion, Deloitte said.
Natalie Martini, vice chair at Deloitte and U.S. leader of retail and consumer products, said in a release that Deloitte expects e-commerce sales to “stay strong” as buyers “keep leveraging online deals to stretch their spending power.”
On the other hand, brick-and-mortar sales are expected to grow by 2% to 2.2% this year, McCarthy said.
However, he added that although e-commerce sales are projected to see more growth based on percentage, when it comes down to actual sales brick and mortar sales are still projected to bring in billions more than e-commerce.
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