Holiday sales in 2024 beat some expectations and missed others, an indication that retailers may be able to look forward to something that has eluded them since the pandemic lockdown of 2020: an ordinary year.
“Given that the spending was good but not great, it really kind of solidified that maybe, finally, retail spending is getting back to normal,” Robert Frick, corporate economist with Navy Federal Credit Union, said by phone.
December retail sales across segments covered by Retail Dive rose 5.6% year over year, which included boosts to categories that had struggled throughout the year, and the U.S. Commerce Department revised November sales higher. For the full year, the federal government calculates that core retail sales rose 2.8% to $7.4 trillion on an unadjusted basis.
“When combined with upward revisions to November sales, the data put 2024 holiday sales just below their long-run average and suggest it was a decent holiday sales season for retailers,” Wells Fargo economists said in a research note earlier this month. “While we've seen some signs of consumer moderation over the past year amid more choosy spending behavior and lower-income households growing more vulnerable, the last retail report of 2024 tells us households just keep spending.”
"Maybe, finally, retail spending is getting back to normal."
Robert Frick
Corporate Economist, Navy Federal Credit Union
This bodes well for 2025 — with caveats.
“As long as households remain employed and are earning income, they likely will continue to spend,” Wells Fargo’s economists said. “That leaves the outlook for retail sales in a healthy place as we kick off 2025.”
UBS analysts led by Michael Lasser foresee a continuation of the consumer behavior witnessed throughout last year and at the holidays.
“Looking ahead, we think that consumers will likely remain choiceful with their spending decisions, driving volatile trends across categories,” Lasser said in a client note.
The heavy reliance on credit to fund holiday spending, an expected surge in returns and economic uncertainty over the effects of policies floated by the incoming Trump administration could undermine consumers this year, experts say.
Specifically, proposed tariff and immigration policies would fuel inflation, according to Bank of America economists led by Aditya Bhave. Inflation, which has steadily eased in recent months, has dampened discretionary spending and kept consumers stuck on discounts, including at the holidays this year and last.
Navy Federal’s Frick agrees that these outcomes are possible, but cautions that much remains unknown.
“It's definitely going to add risk to the system. Risk isn't necessarily bad or good, but it adds uncertainty, so it could have a bad effect on sales,” he said. “Tariffs could raise prices, in which case people would probably recoil and buy less. That's certainly possible, but it's unknown. As far as immigration goes, is that going to raise prices too? It's unknown. But the great thing about the future is, it'll be here soon, and then we'll know.”
Another number in the Commerce Department’s sales report this month — food services — signals further softening in consumer spending, according to the Wells Fargo economists. December’s decline in restaurant sales was the first in nine months and suggests that shoppers avoided dining out to fund their holiday purchases, they said.
“It's the pull back in restaurant sales that give us the most pause,” Wells Fargo also said of December’s report.
“The gap between the haves and have-nots continues to widen."
Ted Rossman
Senior Industry Analyst, Bankrate
However, Frick sees that as a further sign of a potential return to normal. Just after the pandemic, consumers, eager to finally get out and about, spent heavily on services.
“Now we seem to be back to a pretty good balance between goods and services,” he said. “It's both a long- and a short-term normalcy, which I think is healthy.”
Several analysts noted that wealthy households continue to drive most discretionary spending, and that lower-income households could struggle further as wage growth slows and if inflation remains stubborn or picks up.
“The gap between the haves and have-nots continues to widen,” Bankrate Senior Industry Analyst Ted Rossman said in emailed comments, noting that at 2.9%, per the most recent Consumer Price Index, “inflation remains too high.”
Frick agrees, noting that even as the rate of inflation has ebbed, the weight of inflation remains heavy for many.
“Lower-income people are crushed by the weight of inflation,” he said. “The cost of necessities, things we all have to buy — food, transportation, housing, medical care — have gone up above the average rate of inflation ... and lower-income people have to spend a much higher percent of their budget on these necessities.”
"The current relative stability of e-commerce share demonstrates the importance of physical retail post-pandemic and a maturing of e-commerce."
Dori Kesten
Equity Analyst, Wells Fargo
While the pandemic fueled digital sales growth, the balance between online and offline retail may also be normalizing. Holiday e-commerce in general and mobile commerce specifically reached record highs this year, according to Adobe Analytics. E-commerce sales soared over 10% in December and over 6% in November, per the government’s reports. Yet some analysts don’t see this surge continuing unabated.
Recent online sales results aren’t likely to impact store-leasing trends, for example, Wells Fargo equity analysts led by Dori Kesten said in a January client note.
“In our view, the current relative stability of e-commerce share demonstrates the importance of physical retail post-pandemic and a maturing of e-commerce,” Kesten said. “We believe that the most successful retailers are combining their brick and mortar footprint with e-commerce presence to reach consumers.”
In all, the year ended well for retailers, but without any guarantees.
“Retail capped what was, perhaps, a surprisingly good year with a very strong finish,” GlobalData Managing Director Neil Saunders said in emailed comments. “With 2024 behind us, the focus now turns to 2025. We believe the outlook is solid but there are a lot of wildcards from tax cuts to tariffs that could impact retailers and consumers.”
