Holiday retail sales expected to top $1 trillion as inflation boosts growth

Bain projected that in-store sales would account for 70% of the growth, though e-commerce continues to gain share. Higher tax refunds, up $43 billion this year, or 17% year over year, have added cash to consumers' wallets, but Bank of America estimates that half of that benefit has already gone to higher gas prices, which have significantly squeezed budgets.

The report said the headline spending increase is underscored by rising inflation, which accounts for most of the growth and makes actual unit growth thinner than it appears. Categories most affected by inflation and 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.

Deloitte forecast a similar trend but a higher total, saying it expects holiday retail sales to reach $1.7 trillion this year. It said consumers are going to get more creative about how they spend 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.”

Adobe's holiday shopping report also expects value-first shopping to power growth and share this year. The company said it expects buy now, pay later spending to hit a record of $21.3 billion as consumers become more intentional with how they spend their money.

AlixPartners' holiday projections report found that consumers have smaller baskets when they check out but make more frequent trips, especially for grocery shopping. They are 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 is expected to 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 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, up from 22% last year. PwC said 75% of shoppers use it to research products and 55% use it to compare prices.

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.

Editor's Summary

Bain & Company expects U.S. holiday retail sales to top $1 trillion for the first time, a 4.5% increase that inflation largely explains, while consumer confidence fell to its lowest since 2014 in September. Deloitte projects $1.7 trillion in sales as shoppers seek discounts, use buy now, pay later at record levels, and adopt AI for product research and price comparison. The forecasts point to a value-focused holiday season in which dollar growth may mask weaker unit demand.