Inflation, tariffs weigh on consumers as holiday shopping season starts early

The 2025-26 holiday retail season is characterized by consumers beginning purchases earlier due to inflation concerns, with Deloitte forecasting a 3% sales increase to $1.61-$1.62 trillion, a deceleration from last year's 4.2% growth, though e-commerce is projected to expand robustly by 7-9%. Despite expectations of consumer resiliency, other surveys indicate 41% of shoppers anticipate higher prices and plan to reduce spending by 5% on average, prompting retailers to offer discounts. The immediate impact of tariffs on holiday pricing is largely mitigated as inventory was secured early at pre-tariff rates, suggesting retailers are currently absorbing costs to maintain price stability.

Analysis

The 2025-26 holiday retail season is exhibiting signs of cautious consumer behavior amid persistent economic uncertainty. Deloitte projects a deceleration in sales growth to approximately 3.0% ($1.61 trillion to $1.62 trillion), down from the 4.2% expansion observed in the prior year. This slowdown is corroborated by consumer surveys from Bankrate and PwC, which indicate 41% of consumers anticipate higher gift prices and an average planned spending decrease of 5% to $1,552. A key behavioral shift is the early start to holiday shopping, driven by inflation fears, with 49% of consumers beginning before October. A significant bright spot within this environment is e-commerce, which is forecast to grow robustly between 7% and 9% year-over-year. The immediate impact of tariffs appears to be muted, as retailers proactively secured inventory at pre-tariff pricing, effectively absorbing initial cost increases to maintain stable prices, as seen with Costco's product pricing remaining in line with last year. However, analysts suggest this margin absorption may not be sustainable, implying potential future price adjustments or pressure on retailer profitability.

Key Decisions for Investors

• Given the forecasted slowdown in overall retail sales growth and expected heavy discounting, investors should prioritize retailers with strong value propositions and efficient inventory management over those exposed to discretionary spending.
• The projected 7-9% growth in e-commerce significantly outpaces the broader retail sector, suggesting a strategic overweighting of e-commerce leaders like Amazon versus traditional brick-and-mortar-focused retailers.
• Monitor retailer gross margins and inventory levels in post-holiday earnings reports, as the current absorption of tariff-related costs by companies like Costco is likely a temporary strategy that could pressure future profitability.