CGP: Holiday sales growth to slow; home improvement category to outpace other sectors

Inflation in food, gas and household utility costs is shaping up as the Grinch this holiday season.

U.S. holiday sales will rise 5.8% to $912 billion, up from $862 billion last year, according to Customer Growth Partners’ 21^st Annual Holiday Forecast. While the sales figure is a new record, the 5.8% growth — slightly above the 10-year compound annual growth rate of 5.0% — represents a sharp slowdown from holiday 2021’s stellar 13% pace reached in the post-Covid spending rebound, noted CGP president Craig Johnson.

“After 'stratospheric' growth for more than a year, consumer spending is easing to near-normal rates in the mid-single-digit range,” he said.

Johnson said the slowdown represents “a healthy normalization in retail spending, as consumers rebalance spending on services versus goods

“At the same time, retailers are starting to rebalance their operations to reflect the new environment, including trimming bloated inventories, improving supply chain flexibility and optimizing digital and in-store demand,” he said.

The dramatic deceleration in retail growth is due to rampant inflation across most sectors, but particularly in food, gasoline and household utility costs, which are all essential goods that are crowding out spending on discretionary items, explained Johnson.

“With discretionary items dominant in the Christmas season, the threat to holiday gift-giving has rarely been higher — particularly for lower-income household that are hard-pressed to weather the inflation winds,” he said.

Other highlights from CGP’s 21^st Annual Holiday Forecast are below.

• Defying the housing slowdown, home improvement retailers such as Home Depot and Lowe’s will outpace other sectors, up 9.5% from last year.
•  The miscellaneous store category will see 8.9% growth, bolstered by strong sales in used goods, pet supplies, office supplies and gifts.
• Food and beverage sales will rise by 8.2%, but with inflation in food and other household essentials, growth will be due to price increases as unit volume growth lags
• General merchandise sales will rise by 4.7%, led by department stores —up 5.1%.
• Superstore sales will increase by 4.6%.
• Consumer electronics and appliances remains a challenged category, and are projected to see a holiday sales decline of 6.2%.
• Online and direct-to-consumer sales continue to ease, and are poised to grow 7.4% from last year, a far cry from the days of robust double-digit e-commerce growth.

With the consumer economy accounting for more than 68% of overall GDP, and retail the largest segment of consumer spending, the slowing retail recovery may not bolster the wider economic outlook as it has done in past years, according to Johnson.

“Retail growth is slowing as we lap 2021’s supersonic fourth quarter, but we will still see record holiday spending of over $900 billion,” he said. “If the worst of the inflationary fires ease in the New Year, and job growth continues, retail may well see a return to sustainable growth in the healthy 5% to 6% range for 2023.”

Founded in 2001, CGP is a research and consulting firm serving the retail industry. The CGP holiday forecast spans all retail sales except autos, gasoline and restaurants.