This holiday season, online deals might be ‘a little weaker,' as sales slow and shoppers navigate tariff fears

Adobe forecasts online holiday spending to reach $253.4 billion this season, a 5.3% year-over-year increase, marking a slowdown from last year's 8.7% growth. This deceleration is primarily driven by consumers navigating tariff fears and inflation, which is also expected to result in slightly weaker discounts averaging 28% compared to 30% last year. The outlook indicates cautious and strategic consumer spending, with some retailers expressing confidence while others, particularly in the toy sector, anticipate higher prices due to tariffs and potential out-of-stock issues for popular items.

Analysis

This holiday season, online deals might be ‘a little weaker,’ as sales slow and shoppers navigate tariff fears Adobe said it expects shoppers to spend around $253.4 billion online from Nov. 1 to Dec. 31 Referenced Symbols U.S. shoppers are expected to keep spending online at record levels this holiday season, but spending growth itself might slow and the discounts might not be as steep as retailers and customers try to stay ahead of tariffs and inflation, according to Adobe. The firm on Monday said it expects shoppers to spend around $253.4 billion online from Nov. 1 to Dec. 31. That would mark a 5.3% year-over-year gain but a slight slowdown from last season’s 8.7% increase. Vivek Pandya, director at Adobe Digital Insights, said the deepest discounts overall this year would run at about 28%, led by items like electronics. That’s compared with 30% last year. “We do expect the discounts to be a little weaker than 2024’s holiday season, but pretty much on par with where we saw discounts at in 2023,” he said, adding that the discounts still represented a lot of value for shoppers. He said factors like higher grocery prices and efforts by consumers to stockpile things like furniture ahead of potential tariffs had kept discounts overall from running lower. But as the U.S. trade war upends shipments, he said there weren’t yet too many issues with items being out of stock at online retailers. “We see a consumer being very cautious and strategic in how they buy in order to get the most value, and the online sector is supporting the most in that effort,” he said. As consumers face higher costs of living, big discount events from Amazon.com Inc. and other retailers have played a bigger role during the holiday shopping season, pulling its start time — once generally seen as the Friday after Thanksgiving — earlier. Adobe expects shoppers to spend $9 billion Oct. 7-8, the two-day time frame for Amazon’s October Prime Day event. Similar, longer events held by Target Corp. and Walmart Inc. also run through those two days.And as customers hunt for Oura rings and Labubu toys this year, Pandya said artificial intelligence and online influencers working with brands are likely to play a bigger role in shaping shopping decisions. More people will shop on their phones. Retailers that sell clothes, electronics and other typical holiday gift items have seen subdued demand over the past few years. But on earnings calls this summer, chains like Gap Inc. , Williams-Sonoma Inc. , Macy’s Inc. and Five Below Inc. have expressed confidence ahead of the holiday season.Toy maker Mattel Inc. said it hadn’t seen retailers temper their buying patterns for the holidays. Executives noted “general uncertainty regarding consumer demand” for the latter half of the year. But they said they were upbeat about demand for Hot Wheels, better trends for Barbie dolls and solid momentum for action figures related to “Jurassic Park” and the 30th anniversary of “Toy Story.”Chris Cocks, the chief executive of rival Hasbro Inc. , said in July that company hadn’t seen much evidence that consumers were buying early to avoid tariffs. But he noted that toy prices would likely go higher.And he said that retailers would likely still take a cautious approach to what products they buy and stock on their shelves, as inflation keeps shoppers apprehensive. Hot items, he said, could end up out of stock amid shifts in warehouse and stockroom supplies. “So like a Play-Doh, Barbie, Nano-Mals, a baby Evie, if you’re a mom or a dad, you’re probably going to want to go and buy that early,” he said. Adobe's forecast for the upcoming holiday season points to a significant deceleration in online retail growth, with projected spending of $253.4 billion representing a 5.3% year-over-year increase, down from 8.7% in the prior year. This slowdown is primarily attributed to macroeconomic headwinds, including inflation and tariff concerns, which are fostering a more cautious and strategic consumer. Consequently, retailers are expected to offer shallower discounts, averaging 28% compared to 30% last year, potentially impacting volume but protecting margins. The retail landscape shows a divergence in outlook; while general merchandise and apparel retailers such as Gap Inc. and Macy's Inc. have expressed confidence, the toy sector presents a more nuanced view. Mattel (MAT) appears optimistic about its key product lines like Barbie and Hot Wheels, noting stable retailer purchasing. In contrast, Hasbro (HAS) signals greater risk, anticipating higher prices, cautious inventory management by retail partners, and potential stock-outs for popular items. This cautious retailer sentiment, combined with an elongated shopping season driven by early promotional events from giants like Amazon (AMZN), Walmart (WMT), and Target (TGT), suggests a highly competitive environment where inventory management and brand momentum will be critical differentiators.

Key Decisions for Investors

• Given the projected slowdown in online sales growth to 5.3% and shallower discounts, investors should closely monitor retailers' Q4 inventory levels and gross margin performance, which will be critical indicators of operational efficiency in a cautious consumer environment.
• The divergent guidance between Mattel (MAT), with its confidence in specific brands, and Hasbro (HAS), which warns of price hikes and stock-outs, suggests investors should scrutinize individual company execution and product cycle strength within the toy sector.
• Consider that major promotional events from Amazon (AMZN), Walmart (WMT), and Target (TGT) are pulling sales forward into October, potentially concentrating market share gains for these mega-retailers at the expense of specialty retailers who rely more on the traditional November-December shopping period.
• Despite confident outlooks from some apparel and home goods retailers, the overarching themes of tariff uncertainty and strategic, value-focused consumer behavior warrant a cautious stance on the consumer discretionary sector as a whole.