A Macy's store is seen in Herald Square on December 11, 2023 in New York City.
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Inflation may have cooled, but retailers are still looking ahead to the holiday season with great uncertainty.
Several factors that are difficult to predict will influence consumer spending as they deck the halls and search for the perfect gifts. Unsettled weather, election distraction and a deal-hunting mindset could shape the season. And fewer days between Thanksgiving and Christmas than last year will keep buyers on their toes.
Still, there is reason for optimism for retailers: Shoppers are more optimistic and plan to spend more than last holiday season, according to an annual survey by consulting firm Deloitte and a separate forecast from the National Retail Federation.
According to the National Retail Federation, holiday spending in November and December is expected to increase 2.5% to 3.5% compared to 2023, reaching between $979.5 billion and $989 billion. That's a more modest increase than the 3.9% year-over-year rise from the 2022 holiday season to 2023, when spending totaled $955.6 billion. The NRF figure does not include car dealers, gas stations and restaurants.
Shoppers expect to spend an average of $1,778 for the holidays this year, up 8% from last holiday season, according to a survey by consulting firm Deloitte. The survey, which included about 4,000 consumers and was conducted in late August and early September, attributed this increase in spending to a more favorable economic outlook, respondents' perception that prices would be higher, and a higher willingness to spend among households with higher annual incomes $100,000 and $199,000.
Low unemployment, a return to more typical inflation levels and a recent interest rate cut by the Federal Reserve are lifting consumer sentiment, said Stephen Rogers, managing director of Deloitte's Consumer Industry Center.
“Despite the political talk, people are still in a better mood,” he said. “When they look at their bank account and think about what their financial situation is, they do better.”
People shop (left) ahead of Black Friday at a Walmart Supercenter on November 14, 2023 in Burbank, California.
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Deal hunting mentality
Weeks before trick-or-treating, shoppers got a sneak peek at their first holiday deals.
These early deals set the stage for a season in which buyers are expected to look for more ways to stretch their budgets after years of rising living costs.
Nearly 80% of buyers surveyed by Deloitte said they would attend deals events in October and November, compared to 61% last year.
“Our deal to build muscle has really been trained over the last two years and we're just going to keep training it,” Rogers said.
Matt Shay, CEO of NRF, confirmed this prediction. Speaking to reporters this week, he said the retail group expects a stronger promotional environment this holiday season, with offers across more brands and categories than a year ago.
Another potential challenge for retailers? We target customers who value decorations and experiences more than gifts. According to Deloitte's survey, consumers plan to spend 16% more on experiences year-over-year, but 3% less on gifts compared to the holiday season last year. Purchases that are not gifts, including expenses for Decoration and party wear are also expected to rise 9% year-on-year.
The company's survey found that spending in retail categories would remain relatively flat at an average of $1,043 in 2024, compared to $1,020 in 2023. Consumers across all income groups reported value-driven habits, including less self-gifting, greater trading at affordable retailers and more looking for store brands or “duplicates” of more expensive items.
This shift could hurt retailers that sell goods unless they find compelling ways to tie their goods to experiences, such as suggestions for hiking gear, Rogers said.
For Home Depotwhich sells a wide range of Christmas decorations including Santa Claus-themed cushions and a giant animated reindeer for the garden, the high demand for decorations could be an opportunity. Still, the home improvement retailer said it is prepared for consumers to also look for value.
This holiday season, Home Depot bought more inexpensive artificial Christmas trees, such as a pre-lit tree that sells for $49, said Lance Allen, senior decorative holiday decorative dealer at the hardware store.
Signs showing support for both Democratic presidential candidate Vice President Kamala Harris and Republican presidential candidate former President Donald Trump stand along a country road near Traverse City, Michigan, on September 26, 2024.
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Election uncertainty
As Americans wait for the presidential election results, will they also shop for the holidays?
This question also concerns retailers and consumer brands Walmart And SharkNinjahoping shoppers will browse and buy instead of fixating on the news. The election is Nov. 5 and it could take days to determine a winner if the race between Vice President Kamala Harris and former President Donald Trump is as close as polls suggest.
Mark Barrocas, CEO of SharkNinja, called the election the “biggest unknown” that will shape the holiday season.
“It may be a blip, it may be nothing at all, and it may disrupt things for a few weeks when the news cycle is all-encompassing,” he said. “Christmas is coming and there will be a holiday season. It just depends on how many distractions there are.”
He said the election and the associated news cycle could also impact how consumers think about the economy.
Walmart's internal research suggests a “surge in positivity” among its shoppers “Enjoy fall and get ready for Halloween,” said Jen Acerra, vice president of customer insights and strategy at Walmart.
“The only thing that's still out there and moving is what's going to happen with the election, and what happens with the election is really going to determine whether this remains something that remains positive or not,” she said.
Some companies are already blaming the choice for hurting their sales. Amazon justified the weak forecast in August with an election distraction that would dampen demand for online shopping – a comment that some derided as a pretext.
Delta Air LinesCEO Ed Bastian said in a CNBC interview this month that the company expects lower demand before and after the election to hurt the airline's revenue.
“I think consumers will take a little pause when making investment decisions, whether discretionary or otherwise,” he said. “I think other industries will talk about it too.”
After Hurricane Milton hit Florida, the city of Clearwater was flooded. Search and rescue operations are currently underway in the area.
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Hurricane damage and winter temperatures
For retailers, cooler and wintry weather is always on the Christmas wish list.
The weather can get shoppers in the holiday spirit and put them in the mood to buy thicker sweaters, coats and gifts, said Evan Gold, executive vice president of Planalytics, a Philadelphia-based company that advises retailers on weather-related inventory planning.
“There is no external factor that influences consumer purchases as directly, frequently and immediately as the weather,” he said.
This year, early fall got off to a rockier start. The now unofficial start of the holiday shopping season, marked by sales events in October, coincided with unseasonably warm temperatures in San Francisco and other parts of the country and major hurricanes that devastated North Carolina and Florida. This reduces the likelihood that shoppers will want to buy sweaters, coats and artificial trees.
But this year's weather should ultimately help retailers, Gold said, with temperatures in November and December expected to be colder than a year ago. He said the change in the weather, such as a snowfall or a cold snap, can signal buyers to prepare for the season.
Many families will simply try to rebuild from the hurricane's damage rather than buy Christmas presents, which could put the money toward furniture, clothing or home repairs, NRF chief economist Jack Kleinhenz said in a call with reporters.
“It's just an adjustment to their budget in terms of spending, but it's really too early to assess the full impact on retail,” he said.
Home Depot expects the same. Allen said the company removed holiday items from 124 of its large stores to make room for items needed in hard-hit areas, such as clapboards and drywall. Instead, the plan is to sell a more limited range of items such as wreaths and top-selling trees in these stores.
“They are trying to rebuild and restore their homes,” he said. “So obviously they’re not going to buy a 9-foot-long reindeer and put it out there.”
A shorter holiday season
Thanks to the calendar, the holiday rush could be in full swing.
Compared to last year, shoppers will have five fewer days between Thanksgiving and Christmas this year — which could curb spending or prompt time-strapped shoppers to turn to express shipping, curbside pickup or other quicker gift-buying options .
The pressure will be on retailers to make the most of every day and provide convenience as shoppers race to get the products they need and expect items to arrive within a few hours or at least a few days, said Shay of the NRF.
“A shorter period of time has consequences and implications and one of them, of course, is that the shipping season will be shorter,” he said.
Christie Raymond, chief marketing officer at Kohl, said during a recent tour of stores that the retailer expects to have to work even harder to attract customers, particularly low- and middle-income shoppers, through the cumulative effect feel constrained by inflation and suffer from time pressure.
“We think they feel more pressured than they did last year,” Raymond said. And, she added, buyers also said they “feel like they're pressed for time.”
To appeal to these consumers, Kohl's wants to have more of what they need, said Nick Jones, chief merchandising and digital officer.
The retailer has expanded its gift offerings, added more party dresses and started selling a larger selection of decorations, including Christmas trees, lawn ornaments and wrapping paper.
“We want to be a vacation destination,” he said. “We don’t have the food, but we have everything else.”
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