A Macy’s store is visible at Herald Square on December 11, 2023 in New York City.
Michael M. Santiago | Getty Images
Although inflation may have slowed down, retailers are still facing a holiday season filled with uncertainty.
Various unpredictable factors will impact consumer spending as they prepare for the holidays and search for the perfect gifts. Volatile weather, distractions from the upcoming election, and a focus on finding deals may influence the season. Additionally, fewer days between Thanksgiving and Christmas compared to last year will put pressure on shoppers.
Despite this uncertainty, there is optimism for retailers as consumers are feeling more positive and intend to spend more compared to last holiday season, according to an annual survey by consulting firm Deloitte and a separate forecast by the National Retail Federation.
Holiday spending in November and December is expected to increase by 2.5% to 3.5% compared to 2023, ranging between $979.5 billion and $989 billion, according to the National Retail Federation. This is a more modest increase than the 3.9% jump from the 2022 to 2023 holiday season, when spending totaled $955.6 billion. The NRF’s figure excludes automobile dealers, gasoline stations, and restaurants.
Consumers anticipate spending an average of $1,778 on the holidays this year, 8% more than last holiday season, according to Deloitte’s survey. The survey, which included about 4,000 consumers and was conducted in late August and early September, attributed the spending increase to a more positive economic outlook, the expectation of higher prices, and a greater willingness to spend among higher-earning households with an annual income between $100,000 and $199,000.
Low unemployment, a return to more normal inflation levels, and a recent Federal Reserve interest rate cut are boosting consumers’ confidence, according to Stephen Rogers, managing director of Deloitte’s Consumer Industry Center.
“People are still in a better frame of mind, despite the political chatter,” he said. “When they look at their bank account and consider their financial situation, they feel better.”
Deal-hunting mentality
Weeks before Halloween, shoppers were already seeing the first holiday deals.
These early offers have set the stage for a season where shoppers are expected to look for more ways to stretch their budget after facing rising costs of living in recent years.
Almost 80% of shoppers surveyed by Deloitte said they would participate in deals events in October and November, up from 61% the previous year.
“Our inclination to seek deals has been very strong over the past two years, and we will continue to seek them out,” Rogers said.
NRF CEO Matt Shay echoed this prediction, stating that the retail trade group expects a more promotional environment this holiday season, with deals across a wider range of brands and categories than last year.
Another potential challenge for retailers is catering to customers who are more focused on decorations and experiences rather than gifts. Consumers plan to spend 16% more year over year on experiences but 3% less on gifts compared to the previous holiday season, according to Deloitte’s survey. Non-gift purchases, including spending on decor and party attire, are also expected to increase by 9% year over year.
The survey found that spending in retail categories will remain relatively stable, with an average of $1,043 in 2024 compared to $1,020 in 2023. Consumers across income groups reported habits of seeking value, including less self-gifting, shopping at more affordable retailers, and opting for private labels or cheaper alternatives to pricier items.
This shift could negatively impact retailers selling goods unless they find compelling ways to link their products to experiences, such as recommending hiking gear, according to Rogers.
For Home Depot, which offers a wide range of holiday decorations including Santa-themed throw pillows and large animated reindeer for yards, the high demand for decor presents an opportunity. However, the home improvement retailer is prepared for consumers to seek value as well.
This holiday season, Home Depot has stocked more low-priced artificial Christmas trees, such as a prelit tree priced at $49, said Lance Allen, senior merchant of decorative holiday for the home improvement retailer.
Election uncertainty
As Americans await the results of the presidential election, the question remains: will they also shop for the holidays?
This is a concern for retailers and consumer brands, including Walmart and SharkNinja, who hope that shoppers will browse and make purchases rather than being glued to the news. The election is on Nov. 5, and if the race between Vice President Kamala Harris and former President Donald Trump is as close as polls suggest, it could take days to determine a winner.
SharkNinja CEO Mark Barrocas described the election as the “biggest unknown” that will influence the holiday season.
“It could be a minor issue or it could be significant, and it could disrupt things for a few weeks if the news cycle dominates,” he said. “Christmas will arrive, and there will be a holiday season. It’s just a matter of how many distractions there are.”
He also noted that the election and the news coverage around it could impact how consumers feel about the economy.
Walmart’s internal research indicates “an increase in positivity” as its customers enjoy the fall season and prepare for Halloween, said Jen Acerra, vice president of customer insights and strategy at Walmart.
“The one thing that is still uncertain and ongoing is what will happen with the election, and the outcome of the election will really determine whether this positivity continues or not,” she said.
Some companies have already attributed a decline in sales to the election. Amazon linked a weak forecast in August to election distractions that could reduce demand for online shopping, a statement that received some criticism.
Delta Air Lines’ CEO, Ed Bastian, stated in a CNBC interview this month that the company expects lower demand before and after the election, which will impact the carrier’s revenue.
“Consumers will likely hesitate to make investment decisions, whether they are discretionary or otherwise,” he said. “I think you will hear other industries talking about this as well.”
Hurricane damage and winter temperatures
For retailers, colder and wintery weather is always a welcome sight during the holiday season.
Weather can influence consumers’ holiday spirit and encourage them to purchase thicker sweaters, coats, and gifts, according to Evan Gold, executive vice president for Planalytics, a Philadelphia-based company that advises retailers on weather-related inventory planning.
“No external factor impacts consumers’ purchases as directly, frequently, and immediately as the weather,” he said.
This year, the early fall season got off to a rocky start. The beginning of the holiday shopping season marked by October sales events coincided with unusually warm temperatures in San Francisco and other parts of the country, as well as severe hurricanes that hit North Carolina and Florida. These conditions make shoppers less inclined to buy sweaters, coats, and artificial trees.
However, the weather this year is expected to eventually benefit retailers, as November and December temperatures are predicted to be colder than last year. Gold mentioned that a change in weather, such as a dusting of snow or a cold snap, can signal to shoppers that it’s time to prepare for the season.
Many families will likely focus on rebuilding from hurricane damage instead of buying holiday gifts, redirecting funds to furniture, clothing, or home repairs, according to Jack Kleinhenz, the NRF’s chief economist.
“It will be an adjustment in their budget in terms of what they will spend on, but it’s still too early to fully gauge the impact on retail,” he said.
Home Depot is prepared for this scenario as well. It has removed holiday products from 124 of its large stores to make room for essential items needed in hard-hit areas, such as shingles and drywall, according to Allen. Instead, the retailer plans to offer a more limited selection in those stores, focusing on items like wreaths and their top-selling trees.
“They are trying to rebuild and repair their homes,” he said. “So obviously, they won’t be purchasing a nine-foot reindeer and setting it up.”
A shorter holiday season
Thanks to the calendar, the holiday rush may be in full swing.
This year, shoppers will have five fewer days between Thanksgiving and Christmas compared to last year, which could impact spending or motivate time-pressed shoppers to opt for rush shipping, curbside pickup, or other expedited options to get their gifts.
Retailers will be under pressure to maximize each day and provide convenience as shoppers rush to get what they need and expect items to arrive quickly, whether within a few hours or at least within a few days, according to the NRF’s Shay.
“A shorter timeframe does have consequences and implications, one of which is that the shipping season will be shorter,” he said.
During a recent store visit, Kohl’s Chief Marketing Officer Christie Raymond stated that the retailer anticipates having to work harder to attract customers, particularly lower- and middle-income shoppers who have been affected by inflation and are pressed for time.
“We believe they are feeling more financially constrained than last year,” Raymond said. Additionally, shoppers have expressed that they feel pressed for time.
To appeal to these consumers, Kohl’s aims to have a wider range of products they need, according to Chief Merchandising and Digital Officer Nick Jones.
The retailer has expanded its selection of gift items, added more party dresses, and increased its range of decorations, including Christmas trees, lawn ornaments, and wrapping paper.
“We want to be a go-to destination for the holidays,” he said. “We may not have food, but we have everything else.”