By American shoppers surprised industry watchers during the 2024 holiday season, with retail sales rising 4% compared to the previous year, according to Commerce Department data.
This growth was driven by robust spending on cars, clothing, and electronics, defying concerns about inflation and economic pressures.
Major retailers like Target and Abercrombie & Fitch reported strong holiday performances, buoyed by increased demand for toys, apparel, and other seasonal staples.
Target’s November-December sales grew nearly 3% year-over-year, bolstered by higher customer traffic and robust toy and clothing sales.
Similarly, Abercrombie & Fitch exceeded expectations, forecasting growth of 7-8% for the season.
Lululemon, a leader in premium athletic wear, announced anticipated fourth-quarter sales growth of 11-12%.
Calvin McDonald, Lululemon’s CEO, expressed optimism, stating, “I still see a consumer that’s healthy.”
However, despite the optimism, a closer read shows that not all retailers are benefiting, according to a report by The New York Times.
Luxury struggles as affordability dominates
Luxury and specialty retailers faced challenges, as shoppers displayed a preference for lower price points.
Signet Jewelers, which owns brands like Kay Jewelers and Zales, reported weaker-than-expected sales leading up to Christmas, with comparable sales likely to decline by as much as 2.5% in the fourth quarter.
When it came to “fashion gifting,” customers “gravitated to lower price points even more than anticipated,” Joan Hilson, Signet’s chief financial and operating officer, said in a statement, and the company did not have enough of what shoppers were seeking.
Department store chains also faced mixed results.
Macy’s reported flat overall sales for the fourth quarter, as it continues its plan to close 66 of its 479 stores by 2026.
While sales at flagship Macy’s stores lagged, its Bloomingdale’s and Bluemercury beauty chains showed stronger performance.
Meanwhile, Kohl’s, grappling with 11 consecutive quarters of declining sales, announced it would close 27 underperforming locations by April, underscoring the persistent struggles of department store brands.
Bankruptcies cloud retail’s future
Since 2022, rising inflation has tightened consumer budgets, leading to reduced visits to favorite stores and a slowdown in foot traffic and sales.
The typical holiday season boost was insufficient to rescue all retailers.
Party City, Big Lots, Joann, and the Container Store filed for bankruptcy in recent months, with Party City and Big Lots closing all stores.
“If there’s a company out there that was sort of praying for holiday to really save them, my guess is that it probably didn’t save them,” said Isaac Krakovsky, a retail sector leader at the consultancy EY, who is in frequent communication with retail executives.
“It probably gave them enough time to limp along for a little further because of the promotional nature of holiday.”
Cautious growth outlook for 2025
Economic uncertainties loom large as retailers look ahead to 2025.
US GDP growth is expected to slow to 2% from 2.5% in 2024, adjusted for inflation.
Analysts caution against interpreting holiday spending as a sign of sustained consumer confidence, citing the potential impact of policy shifts under the Trump administration.
“There’s a question mark on what policies are announced in January that could make the consumer think twice before their spending,” said Mickey Chadha, a vice president at Moody’s Ratings.
It could be tariffs, it could be immigration, it could be taxes. There are a lot of different policy changes that could impact the mind-set of the consumer.
Mr. Krakovsky, the EY consultant, echoed that sentiment.
“We’re not seeing this as an indication of gangbuster growth coming in the next year,” he said.
It’s cautious growth expected in 2025.
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