US holiday shopping growth to cool this year, Mastercard forecasts

Mastercard forecasts U.S. holiday retail sales growth to temper to 3.6% between November 1 and December 24, a decline from 4.1% last year, as inflation and macroeconomic uncertainty drive consumers to seek discounts. Online sales growth is also projected to moderate to 7.9% from 8.6%. This outlook underscores increased pressure on retailers, with pricing becoming a more critical factor for consumer spending amidst a broader context of mixed industry forecasts.

Analysis

A Mastercard forecast signals a deceleration in U.S. holiday retail sales growth, projecting a 3.6% increase for the November-December period, down from 4.1% in the prior year. This moderation is attributed to persistent inflation and macroeconomic uncertainty, which are compelling consumers to be more price-sensitive and actively seek promotions. The slowdown is evident across channels, with online sales growth expected to temper to 7.9% from 8.6% and in-store sales growth slowing to 2.3% from 2.8%. The report highlights that external pressures, such as tariffs, are increasing costs and making pricing a more critical factor in consumer decisions this year. This cautious outlook is contextualized by a significant divergence in guidance among major retailers: while Walmart and Macy's have raised their annual forecasts, Target and Best Buy have maintained theirs, and toy manufacturer Mattel has issued a cut, indicating varied levels of resilience and strategic positioning across the sector.

Key Decisions for Investors

• Given the forecast for a price-sensitive consumer, investors should prioritize retailers with demonstrated pricing power and effective promotional strategies to protect margins.
• The divergence in corporate guidance suggests a selective approach, potentially favoring firms like Walmart and Macy's that have raised forecasts over those with maintained or lowered outlooks, such as Mattel.
• Portfolio allocation should continue to favor retailers with robust online sales channels, as e-commerce is still projected to grow at 7.9%, significantly outpacing the 2.3% growth expected for in-store sales.
• The overall deceleration in sales growth warrants a cautious stance on the consumer discretionary sector, with close monitoring of promotional activity and consumer spending data through the holiday period.