Despite macroeconomic pressures and a cautious consumer, retail sales this holiday season are expected to grow year-over-year as spending remains strong.
According to Bain & Company’s annual forecast, holiday retail sales are expected to top $1 trillion for the first time, marking a 4.5% growth. That growth is largely projected to be from in-store sales at 70%, though e-commerce is continuing to gain share.
The holiday spending is supported by higher tax refunds, which are up $43 billion this year, or 17% year over year, adding more cash to consumers’ wallets. Even still, the report noted that Bank of America estimates half of that benefit has already gone to higher gas prices, which have significantly squeezed budgets.
Bain also noted that the headline spending increase is underscored by rising inflation, which accounts for most of the growth, making actual unit growth thinner than it appears. Categories that are most affected by inflation with unit decline include food and beverage, furniture, and health and personal care.
The spending forecast comes as the Conference Board reported Tuesday that consumer confidence fell to its lowest level since 2014 in September. Respondents said they were worried about inflation and the jobs outlook.
Still, Deloitte forecast a similar projection to Bain, saying it expects holiday retail sales to reach $1.7 trillion this year. It noted that consumers are going to get more creative about how they’re spending their money, including looking for discounts and markdowns.
“As they look to get more out of their dollars, we continue to see value-seeking behaviors across income levels, including switching among brands and retailers and using promotions to manage spending,” said Natalie Martini, vice chair of Deloitte and U.S. retail and consumer products leader. “These behaviors are expected to shape how consumers approach holiday shopping this season.”
That’s a trend echoed by Adobe‘s holiday shopping report, which expects value-first shopping to power growth and share this year. The company also said it expects buy now, pay later spending to hit a record of $21.3 billion as consumers become more intentional with how they’re spending their money.
In another sign of changing habits, consumers have smaller baskets when they’re checking out, but they’re making more frequent trips, especially when it comes to grocery shopping, according to AlixPartners’ holiday projections report. They’re also shifting from premium to private-label brands and buying fewer, higher-quality items.
“Consumers are not cutting back evenly across every category,” Sonia Lapinsky, leader of fashion retail at AlixPartners, said. “They are becoming more selective about self-gifting and looking for ways to preserve quality while staying within their budgets.”
Artificial intelligence will also be a theme for discovery and purchasing this holiday season. According to Adobe, AI-driven traffic to retail sites grew 127% year-over-year in August and is expected to grow 130% year-over-year overall through the holiday season and 141% year-over-year on Thanksgiving.
According to PwC’s holiday report, 29% of consumers plan to use AI somewhere in their holiday shopping this year. That’s up from 22% last year.
But the way consumers are using AI for shopping is diverse: 75% of shoppers use it to research products, and 55% use it to compare prices, PwC said.
Still, the company noted that while the appetite to explore through new technology is strong, most people are still not buying products directly through AI platforms.
“For now, AI is the modern equivalent of a knowledgeable friend at the mall, not the cash register,” the PwC report read.
