As the holiday season looms and retailers prepare for their busiest time of year, uncertainty swirls around the economy and whether retailers and brands can deliver a successful holiday shopping season later this year. Changes in consumer sentiment, the impact of tariffs and ongoing inflation are just a few challenges businesses face as the industry fully enters the second half.
If the past offers any indication of how retail will fare this year, industry experts told HGI that total retail sales in the U.S. should show a year-over-year gain, with holiday sales also showing a gain. Of course, certain categories may not perform as well as others, but overall, there is optimism in the market as retailers learn from the past.
Michael Appel, principal of Appel Associates and former CEO of Rue21, who has also held a variety of leadership roles at retailers such as Bloomingdale’s, said despite inflation pressures, tariff concerns and fluctuating consumer sentiment, he reminds the retail industry of one simple truth: “Christmas comes every year.”
Past Holiday Season Results
According to researchers at Mastercard Spending Pulse, resilient shoppers marked holiday sales in 2024. “Empowered consumers sought value at every turn this year, responding to promotions during the November and Black Friday shopping period, and filling their baskets in the run-up to December 24,” the report said. “Overall retail sales saw a 3.8 percent increase compared to 2023, with the last five days of the holiday season accounting for 10 percent of all holiday spending.” Noteworthy were apparel sales, which experienced a much-needed gain of 3.6 percent year over year.
In 2023, Mastercard Spending Pulse noted a 3.1 percent gain year-over-year in holiday sales. In 2022, the firm reported explosive growth of 7.6 percent, which was driven by robust online sales. In that report, Steve Sadove, senior advisor for Mastercard and former CEO and chairman of Saks Inc. the holiday retail season “looked different than years past. Retailers discounted heavily, but consumers diversified their holiday spending to accommodate rising prices and an appetite for experiences and festive gatherings post-pandemic.”
Looking at historical data, holiday sales have experienced year-over-year gains since 2012 — although there were shifts in how and where shoppers spent. For example, the pandemic showed a seismic shift in online spending. Citing data from Adobe Analytics, CNBC reported in January of 2021 that online sales during the holiday shopping season of 2020 rose over 32 percent year over year.
When asked about the notable trends of the holiday shopping season over the past few years, Elizabeth Lafontaine, director of research at Placer.ai, said in 2020 and 2021, consumers, despite the backdrop of the pandemic, “celebrated the holiday season in force, due to a combination of stimulus payments that created higher levels of disposable income and the inability to spend on experiences and travel.”
“With ongoing concerns around tariffs on imported goods, we may see [a] decline in holiday spending and a continued shift toward early shopping as consumers try to avoid price hikes.”
—Michael Podolsky, PissedConsumer.com
In 2022 and 2023, Lafontaine told HGI that the holiday season was “marked by inflationary pressures that stretched consumers’ wallets and perception of higher prices made shoppers much more discerning about holiday purchasing while 2024 brought a shorter holiday season, with one less week between Thanksgiving and Christmas; the retail industry also faced more value-oriented shoppers.”
There were other hiccups too.
“In the early post-pandemic years, some retailers did face supply chain issues, so scarcity was higher for more key items and popular categories,” Lafontaine explained. “However, over the past few years, retailers’ biggest hurdles have been providing value and innovation to shoppers. Building the right types of promotions and price points to attract consumers has been challenging with inflationary increases, and retailers also had to find new and unique offerings to try and set themselves apart from the competition.”
The Consumer Mindset
Michael Podolsky, the CEO and co-founder of PissedConsumer.com, which is a consumer advocate and product review platform, told HGI that each holiday season “reflects how consumers adapt to evolving economic pressures.” And this year will be no different.
The site conducts an annual poll of consumers, and in 2022, Podolsky said, “inflation was only beginning to influence spending behavior, with just 8 percent [of respondents] citing it as a reason to skip holiday shopping. By 2023, tighter budgets led to growing mistrust, with 14.4 percent of shoppers noting that retailers raised prices, and 15.8 percent claiming there’s price manipulation.”
He said last year, despite 74.1 percent of those polled saying inflation impacted their spending, holiday shopping rebounded. “Consumers actively spend on holiday gifts but shifted toward budget-conscious purchases, started shopping earlier than usual, and increasingly opt for online retailers such as Amazon. With ongoing concerns around tariffs on imported goods, we may see [a] decline in holiday spending and a continued shift toward early shopping as consumers try to avoid price hikes.”
Podolsky and Appel both expect shoppers to be more price-sensitive this year. And for small businesses, this will be a significant challenge.
“Over the past three years, small businesses have faced the ongoing challenge of maintaining reasonable prices while still providing value,” Podolsky said. “Our surveys highlight that consumers heavily rely on sales and discounts during the holiday shopping season. Each year, retailers must create holiday campaigns that not only align with shoppers’ needs but also meet their growing expectations.”
Podolsky said in 2022, 42.3 percent of shoppers said a discount of 25 to 50 percent influenced their decision to buy. “By 2023, expectations had shifted, and 52.5 percent of consumers looked for discounts of over 50 percent,” he said. “This trend toward deep discounting continued through the last holiday season, with over half of consumers waiting for major sales, pressuring retailers to manage price increases while still offering compelling deals.
“The retailers that will win this holiday season are the ones that are able to remain nimble and react to changing conditions as close to the season as possible.”
—Elizabeth Lafontaine, Placer.ai
There are other issues to contend with. “The understaffed customer service teams and lack of customer service support were another challenge for businesses,” Podolsky explained. “Our platform has seen a significant rise in complaints related to refund delays, delivery problems and billing disputes during holiday shopping. Brands that proactively prepared their customer service teams for peak season were able to meet customer expectations while keeping operational costs in check. Because today’s consumers don’t just seek affordable products, they also want to receive great service. Retailers with faster delivery and accessible support channels stood out and earned greater customer loyalty.’
Dealing With Wildcards
Regarding the impact of tariffs and inflation on the supply chain, Appel said the problem this year “is we won’t know until September what the inflationary effect of the tariffs is going to be because the goods haven’t been delivered yet.” Appel said retailers are in a balancing act: ensuring their shelves are stocked while preparing for potential price increases that could deter shoppers. “If they don’t have enough merchandise, they’re not going to make sales,” Appel warned, adding that some companies might “play chicken” with timing to offset risks but risk losing sales opportunities.
Interestingly, Appel also emphasized the counterintuitive impact inflation can have on retailers. “Inflation is actually good for the retail business — from a revenue standpoint,” he said. Higher prices mean more dollars flowing in, but there’s a catch: “You’re not going to sell as many units. Margins are going to be crushed, and profits might not follow those revenue increases.”
For this coming holiday shopping season, Lafontaine said uncertainty poses the largest challenge to the retail industry as it plans for the holiday season. “Consumer sentiment is low and economic uncertainty is high, and retailers are unsure of how to plan for a season, both in terms of product and pricing. The retailers that will win this holiday season are the ones that are able to remain nimble and react to changing conditions as close to the season as possible.”
Given this uncertain landscape, major retailers are gearing up for new strategies to secure sales earlier—and hedge against weaker spending later in the year. Appel pointed to Amazon’s decision to expand its Prime Day event in July from two days to four. “They’re doing it in July because they want to get as much business as early as possible as a hedge against what might happen in the third and fourth quarters,” he explained. Similarly, Sam’s Club has announced plans to extend its own promotional events, and Appel speculated that Walmart would follow suit soon. “The idea is, ‘Let’s get customers spending now, before they go into sticker shock later.’”
Despite the swirling challenges of inflation, tariffs and unpredictable consumer sentiment, one truth remains steadfast: retailers can count on holiday shoppers to show up when it matters most. While consumers are increasingly value-driven, retailers who adapt through strategic promotions, deep discounts and superior customer care may emerge as leaders in this evolving landscape.
“The question is, will holiday sales be up 3 percent? Up 5 percent? Or, down a little?” Appel said. “Either way, Christmas is going to come, no matter what.”
