Holiday Sales Expected to Cool This Season, Phoenix on ‘Nice’ List

Holiday retail sales growth is expected to moderate this season following two explosive years for consumer spending, according to CBRE’s annual Holiday Retail Trends Guide.  Inflation, lower savings rates, rising credit card debt and resumption of student loan payments have all affected both consumer budgets and confidence.

Year-over-year retail sales in the Q4 holiday period are expected to increase by 3% compared to the 7.5% jump in 2022 and 14.6% surge in 2021, according to CBRE research.

“Despite economic headwinds, retailers can still expect to have a solid holiday sales season, just not quite at the clip of past years,” said Laura Barr, Americas Retail Leader for CBRE. “Additionally, retailers’ efforts to streamline the handling of inventories and processing of returns are expected to drive improved product availability and customer experiences.”

1. Economic uncertainty looms over consumer spending

While wage growth has exceeded inflation and U.S. unemployment remains low, the personal savings rate fell to 3.9% in August, less than half of the long-term average of 8.8%. Further, credit card usage is up 14% from a year ago and the resumption of student loan payments could limit household spending power by up to 2% in Q4 2023.

2. Retailers have adapted to address inventory levels

Less container volume at U.S. ports reflects a tempering of retailers’ need to hold excess product inventory as supply chains have normalized. It also means retailers don’t need as much industrial space to stockpile this inventory, particularly in light of the increased on-shoring of manufacturing operations and more efficient handling of merchandise returns.

Brick-and-mortar stores also play a vital role in retailers’ processes for the handling of returned goods bought online, commonly called reverse logistics. More than 50% of respondents in CBRE’s Live-Work-Shop survey reported that they prefer to return items in-store rather than through mail. This phenomenon has boosted in-store foot traffic, giving brick-and-mortar locations an additional influx of shoppers.

3. Retail real estate fundamentals remain strong heading into the holiday season

Overall retail availability across all property types hit 4.8% in the third quarter, the lowest level in CBRE’s historical database dating back to 2005. Temporary pop-up stores that typically proliferate during the holiday shopping season are finding available space hard to come by, especially in prime trade areas. With demand high, landlords have less need to accommodate temporary tenants in prime spaces that could otherwise be offered to a tenant with a longer-term lease.

4. Several markets can expect to enjoy sales growth this season

Select markets around the country stand to see notable retail sales growth compared to last year, according to Oxford Economics. 

Top Ten Markets for Retail Sales Growth Forecast, Q4 2023 vs. Q4 2022

Source: Oxford Economics, Q3 2023. Note: The Bay Area includes San Francisco, Oakland and San Jose. North Florida includes Jacksonville, Orlando and Tampa.

Read the full report here.