Consumer sentiment has ticked up, but forecasts for Q4 retail sales see only modest growth as shoppers trim their budgets.
The retail industry begins its annual fourth-quarter dash to the end of its fiscal year (Jan. 30), with the majority of consumers planning to spend the same or less on gifts compared to last year. Overall, industry forecasters predict decelerating sales growth this year, despite a recent rebound in the widely-followed University of Michigan Index of Consumer Sentiment.
Regardless of whether the economy achieves a soft landing or avoids a recession, consumers are still adjusting to the stubbornly high costs of major living expenses, such as housing, cars, and insurance. Across several recent consumer surveys, a common theme emerges—consumer confidence in the future is rising, but so are credit card debt and financial stress.
In a survey of 1,300 shoppers across the US, Canada, and the UK, 9 out of 10 (a full 90%) said they expect to spend 50% less on holiday gifts this year compared to 2023, according to project44, a logistics technology vendor.
A recent survey by Bankrate, a financial services platform, found that 33% of holiday shoppers plan to spend less this year, and another 43% plan to spend about the same. Consumers are embracing frugality, says Bankrate senior analyst Ted Rossman, because “multiple years of high inflation and high interest rates have taken a considerable toll.”
The Bankrate survey also found that older generations “are more likely to feel stretched thin during the holiday season.” A third of Gen X holiday shoppers said gift shopping will strain their budgets, while only one in five Gen Z respondents said the same.
Accounting network PwC (PricewaterhouseCoopers) reported similar results. Nearly 30% of respondents in its survey expect to spend less this season than last, marking a new high. A quarter of respondents said they will spend more, which—except for pandemic-era 2020—was the lowest PwC has ever recorded.
The National Retail Federation, which has a strong track record for forecasting industry revenue, is projecting full-year fiscal 2025 sales growth of between 2.5% and 3.5%, down from fiscal 2024’s final tally of 3.8%. While this might seem like a small number, it’s based on a very large industry base.
Beneath the top line, there will be the usual suspects that outperform and those that lose ground or disappear. Walmart is projecting sales growth of up to 4.75% for the current year, and Amazon.com’s e-commerce sales are expected to grow by more than 10%.
At the bottom of the list, companies that are perennially struggling include department store brands like Macy’s and Neiman Marcus, apparel chains like Express Inc., and big-box hardware stores like Lowe’s and Home Depot, along with some surprises like Nike.
One can only wonder how consumers feel about each of these companies' product offerings and why they are winning or losing.
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