Retail is heading into 2025 with the wind at its back – can US consumers keep up the retail spending? A Forbes article from Pam Danziger discusses some recent stats and what they could potentially mean.
Key Facts:
- Record Holiday Sales Growth: Holiday retail sales during the November-December period surged unexpectedly, reaching a record $994.1 billion – 4% higher than 2023 figures – according to the National Retail Federation (NRF). Initially, the NRF had projected a growth of only 2.5-3.5% for the 2024 holiday season, focusing on core sales excluding autos, gas, and food service.
- Strong Performance Across Sectors: Online and non-store retailers led the sales increase with almost 9% growth compared to last year. Remarkably, even home furnishing and furniture stores, previously struggling, saw sales rise by 5.6% during the holiday season. In contrast, construction supplies and hardware stores were one of the few sectors that remained flat.
- Record Retail Contribution and Returns: In 2024, retail contributed an impressive $5.28 trillion to the U.S. economy, marking a 3.6% year-over-year increase that reflects a stabilization after the pandemic’s volatility. The NRF also predicts that returns in 2024 could reach up to $890 billion, with an estimated 17% of total retail sales expected to be returned—surpassing rates from 2019 to 2022.
Big Question
As we approach the peak holiday shopping season, American households find themselves in a challenging financial landscape, with total debt reaching $17.9 trillion by the end of the third quarter of 2024, according to the Federal Reserve Bank of New York. Notably, credit card debt, which plays a critical role in driving retail spending, has surged to $1.2 trillion—an 8.1% increase compared to the previous year.
Neil Saunders from GlobalData in a recent LinkedIn post pointed out that December saw a significant uptick in purchases made on credit cards, particularly through buy-now-pay-later (BNPL) options. However, Saunders noted that a greater proportion of these purchases were made at discounted prices, which could negatively impact retailers’ profit margins.
Contra
Despite a brief boost in consumer confidence in November, The Conference Board reported a decline in sentiment by December. Consumers expressed less optimism regarding business conditions, the job market, and their income prospects. While the likelihood of a recession within the next year has diminished in their minds, people’s expectations for their own family’s financial situation have taken a more pessimistic turn.
What to Watch For
Looking ahead, Saunders anticipates “polarized” earnings reports as retailers finalize their results for 2024. For context, the Wall Street Journal noted that over the last three quarters, major retailers such as Walmart, Amazon, and Costco collectively accounted for 17% of overall retail sales while generating nearly 60% of the growth in this sector. This trend underscores a significant divide in the retail landscape that could shape future strategies and outlooks.
