U.S. retail performance in 2024 exceeded expectations, marking a strong start to the holiday shopping season, which bodes well for 2025. Holiday sales for November and December reached $994.1 billion, just shy of a record-breaking 4% increase over 2023. This growth surpassed the National Retail Federation's (NRF) preliminary estimate of a 2.5% to 3.5% increase, and does not include auto sales, gas, or food service retailers, which likely pushed the number even higher.
Online and nonstore retailers led the charge, with a nearly 9% year-over-year gain. Even struggling categories such as furniture and home furnishings saw a notable 5.6% gain during the holidays. However, some categories, like building materials and hardware stores, showed weaker performance. Despite some challenges, overall retail performance reached a record-breaking $5.28 trillion in 2024, representing a 3.6% year-over-year increase. This marks a return to pre-pandemic growth levels, similar to those between 2010 and 2019.
While retail spending in 2024 has been robust, there are concerns about the road ahead for consumer spending. A key factor to watch is returns, which are estimated to reach around $890 billion for 2024. Holiday returns typically peak at about 17% of retail sales, a significant jump from the 13% average seen between 2019 and 2022. These return figures will likely be revised as more returns continue to come in.
There are mixed opinions on whether the momentum in retail spending will continue into 2025. NRF Chief Economist Jack Kleinhenz notes, "Consumers are financially healthy, but they are still prudent. These increases in spending have been huge, but where they're cautious is how much and on what they spend."
Another contributing factor to the surge in consumer spending throughout 2024 has been a rise in household debt. By the end of the third quarter of 2024, American households had accumulated $17.9 trillion in debt, including $1.2 trillion in credit card balances, an 8.1% increase compared to the previous year. According to experts, credit spending serves as a proxy for U.S. retail spending, fueling much of the retail market, but also acting as a potential liability for the economy.
Consumer confidence played a role in the retail trend as well. While it surged in November, it dipped in December, with consumers feeling more pessimistic about business conditions, the labor market, and income prospects. Despite not anticipating a recession in the next year, consumers are more concerned about their personal financial conditions.
The outlook for retail in 2025 remains mixed, with varying perspectives on earnings reports. Retail giants such as Walmart, Amazon, and Costco showed significant growth, collectively accounting for 17% of all retail sales in 2024 and nearly 60% of the year’s sales growth. While their success may provide some stability, the concentration of sales among a few major players could present risks if any of these giants experience difficulties.
In conclusion, while the strong retail sales in 2024 offer promising potential for 2025, concerns about consumer debt, returns, and shifting levels of confidence make the year ahead one of both opportunity and uncertainty for retailers.
