Holiday shopping outlook in the retail sector remains mixed amid strengthening business sentiment
The retail sector's business landscape has displayed some improvement heading into the high-stakes pre-Christmas period. According to the Ifo Institute's November business survey, the index rebounded from -13.5 points in October to -8.8 points, marking the first increase in three months. Though retailers' optimism has picked up, persistent demand challenges persist, suggesting the holiday shopping season may not deliver a major growth impetus this year.
Retailers are primarily grappling with waning demand, even as the Christmas shopping season approaches, according to the Ifo expert Patrick Höppner. Furniture and DIY stores, as well as retailers dealing in consumer electronics and toys, face especially challenging business situations. However, the situation shows signs of improvement for food retailers and car dealerships.
The declining inflation trend may provide a fresh boost in the coming year, as price increases in retail sectors are expected to diminish further, said Höppner. He noted a particular relief in the food sector, where price pressures have recently increased compared to other retail sectors.
The HDE industry association anticipates retail sales revenue of €120.8 billion for November and December, marking a 1.5% increase, or a 5.5% decrease when adjusting for inflation. Despite the modest rise in sales, retailers have reported an improvement in business activity in recent weeks, with a perceptible improvement just before the start of the Advent season, stated HDE Managing Director Stefan Genth.
In the Future:
The retail sector's prospects for the Christmas shopping season in 2024 appear promising, with forecasts projecting robust online sales growth. Over 70% of consumers are expected to shop online, driving a significant surge in electronic sales to surpass $280 billion.
Value-conscious shoppers are focusing on finding the best deals, with over half bargain hunting for sales and discounts. Consumers, particularly in the U.S., begin their shopping earlier, often in November, with less than 10% delaying their purchases until December.
Grocery inflation, however, remains a potent factor, with annual increase rates around 3.7% in the UK as of December 2024. Consequently, consumers have taken a liking to premium own-label alternatives, which have experienced a significant uptick in sales of 14.6% year-on-year.
The retail industry is projected to experience mid-single digit growth in 2025, fueled by a strong economy and consumer spending. Technology continues to shape retail strategies, with AI-driven innovations improving inventory management, demand forecasting, and customer personalization.
Retailers are also focusing on bolstering their loyalty programs, strengthening digital commerce, and enhancing the omnichannel shopping experience to engage and retain customers, creating an efficient and personalized shopping environment.
Seasonal sales fluctuations may continue to affect retailers, with a typical surge in December sales and subsequent decline in January due to post-holiday returns and reduced spending.
