Deloitte Predicts A $1.7 Trillion Holiday Season

0:00Hello and welcome to Future Commerce, the podcast at the intersection of culture and commerce. I'm Phillip. And I'm Alicia. And it's here again. We are in the throes of the holiday season and retailers are facing the same simple question. How much are consumers going to spend? I want to know it. You want to know it. And one of the challenges is we don't have a ton of data to help us make sense of it. How are people going to spend their dollars? Where are they going to spend it? and what are the right forecasts to look at so that we can decipher all of this. And we're still feeling the pressure here, Alicia, right?

0:35Yep. I think that there's a lot of mixed signals out there. I open up the Doomscroll apps and it's the gas prices and all the rest, but I think what we need to look at actual data. And from back to school through holiday retail forecasts, we're seeing some positive consumer signals, believe it or not. And we're going to look at one of those today. Deloitte has released its annual holiday retail forecast and its consumer holiday studies coming right behind it. We're sitting down with one of the experts behind that work. He is a principal in Deloitte's strategy and analytics practice with more than 15 years of experience across the retail value chain and merchandising supply chain and store operations.

1:11And he's going to help us unpack this holiday forecast and the decisions that retailers can make to shape their season strategies that we should be watching as it all unfolds. So Brian McCarthy, Welcome to Future Commerce. Hey, thanks for having me. Happy to be here. Glad to have you, of course. So what's the headline in this year's holiday outlook and what might be hiding in the data? Yeah, we think we're gonna see a steady holiday season this year with consistent performance from what we saw last year. So for a little bit of context, the simple numbers, we're projecting between four and 4.8 % growth this year during the holiday season.

1:47And that's comparable to last year's 4.1 % growth we saw in actuals after the holiday season. Now, that's pretty bullish, if you ask me. I'd love to get into where you're seeing that growth, which categories, where people will be spending. And do you believe that is in tension with the other data points that we're seeing? People say they're feeling stretched. So what's driving the growth? And are people buying more? Are they paying more? Or is it about where they're spending? Sure. There's a lot to unpack here. One simple number. If we think about that 4 % to 4.8 % growth for this holiday season, most of that is likely going to be based on price adjustments.

2:32So overall volume may be relatively flat this year, but we're still going to see overall sales growth as price increases there. And there should still be some volumes and some categories are going to win more than others. we're actually going to dig into where we believe certain categories are going to be of interest to customers in our consumer holiday study. But it's also interesting to see how holiday shopping is evolving. So we look at this from a channel perspective. And while at an overall retail industry perspective, we see that 4 % to 4.8 % growth, when we look at brick and mortar stores, which is the traditional in-store shopping experience, We're seeing about 3.2 to 3.9 % growth there.

3:16And digital channel, which can include everything from shopping on your computer to your mobile device to social commerce and now even Igentic, we're projecting that between 7.5 and 8.4 % this year. So you can see a continued channel shift to more digital ways of shopping. the last point you're getting at we actually have been seeing and paying attention to consumers telling us for years that they are feeling pressure they are feeling economic concern right and yet we consistently see year over year a strong retail industry with continued growth and so it's worth looking at sentiment but behavior holds stronger than sentiment when it comes to holiday.

4:03And so we look at a metric called disposable personal income. And we believe that's going to be between 4.5 and 5.2 % this year. It basically says how much money a household has after paying their taxes and other things that they have to pay for. And that is the indicator that we use in our economic forecast to project holiday sales. Holiday starts early on Walmart Marketplace. Apply to sell and get your inventory to Walmart fulfillment services by September 15th to prepare for millions of holiday shoppers. That's right. Build your seasonal assortment with something called customer favorites. That's products that Walmart customers already love and they are actively searching for.

4:47Then you add eligible customer favorites to your catalog and you as a merchant, you can receive up to 100 % off referral fees on those items. So I don't know what you're waiting for. You can get holiday ready with Walmart Marketplace. Sign up today at marketplace.walmart.com slash future commerce. That's getting holiday ready with Walmart Marketplace and 100 % off referral fees. When you use customer favorites, visit marketplace.walmart.com slash future commerce. Now, this is really interesting. I want to dig a little bit deeper into, you know, the value-driven consumer, because I feel like this is something that we've been speaking about, iterating upon for several years now.

5:35And, you know, how that's really impacting or should impact the strategies that retailers implement going into the holiday season, because, you know, it is a recurring narrative. So it truly is a fundamental structural change, it seems, or a psychological change in the consumer's minds than a blip or a momentary fleeting feeling. Right. In fact, you found nearly seven in 10 retail executives believe that trading down or value driven shopping represents that structural change. So if we were to break that down into something strategic or even actionable for the folks listening, what should that translate to knowing that to your earlier point that a fair amount of the shopping is going towards those digital channels, which I do want to dig into next?

6:32I mean, what are the fundamental things they should be thinking about now? Yeah. Yeah. In fact, I think this is a good example about that difference between sentiment and behavior. And we've talked about that. Yep. Yeah. But we're seeing that sentiment shift not towards spending less, but then spending more strategically, more thoughtfully, more intelligently. Right. So like that's how I think that sentiment has shifted into behavior where we're not seeing reduction in spend. We're just seeing a shift in a savviness of customer who's getting much more sophisticated and understanding where's the best deal.

7:07When's the best moment in time to get the best value for their dollar through promotions? So if I'm a brand or a retailer, I need to acknowledge and appreciate the savviness of the consumer and their value seeking behaviors. they're paying more attention to not the price of the product but how long is it going to last is the style up to their you know expectation if you're charging more for a certain brand are there features or fabrics in apparel or other attributes of a different category that justify the higher price point that your brand is offering consumers are willing to look towards private label much more than they used to be as the private label quality demonstrates that it can just be as strong as, you know, national branded things.

7:56And then you were getting to a little bit, but digital shopping enables much less friction and shifting behavior. So a loyal customer who's been shopping at a particular brand or retailer for years, it's very easy for them to move to another one in a digital channel where there's no physical effort required. And then the emergence of a Gentic as a, let's say, an assistant to a consumer, to a shopper, may actually discover additional brands and retailers they may not have known otherwise that get presented to them because it's helping them solve a particular problem or, you know, find a certain product or service.

8:36So it's, I don't know, I think it's a very interesting time to be a consumer and to be a retailer brand trying to compete in this environment. Yeah. And what I find interesting is it's almost like we're seeing a expansion or an extension of some of the things that we talked about, Brian, when we were digging into Back to School specifically, because one of the data points that really stopped me when I was kind of going through the key takeaways is, you know, the consumer was more, you know, value driven, sure. But the more savvy they were in that process, like they ultimately spent more and I'm very much summarizing the key takeaway.

9:22But I think that's an important distinction for folks to take note of because we hear value when we immediately think cost savings, but that's not always the case. So that allows us to kind of really understand like the psychology, especially for something like holiday shopping. I know I personally am like weighing all the deals and using all the tools, but yet I still end up spending more because of like the nature of holiday shopping and the joy and the nostalgia of it all. Like there are so many other factors that I think come into play for holiday. But I guess my question for you is how are you seeing some of the trend lines that emerged during back to school, knowing that too is kind of like an event-driven moment, how are you seeing those trends continue on or even evolve as we get into holiday where maybe the emotional aspects of shopping may feel a bit more heightened or intense than, say, back to school, which is very logistical or list-driven, for lack of a better term?

10:21Yeah, totally. We consistently try to look to see are there clear signals that back to school gives us that can help us forecast holiday better or differently. And consumers have consistently shown in the way that they spend that they really do treat these as completely disparate events. So there are things that I feel confident we can say is holding true and we should expect to see the holiday, but less about this category won or lost, or this is how much people spent or when they spent during back to school is going to say something about holiday. I think there's less there, but much more on this idea of value-seeking behaviors.

11:04I believe this is a structural shift in how consumers shop and behave that isn't just because of the environment we're in. I think part of this is an evolution about how consumers research, taking advantage of the information that's available to them. So now the emergence of agent e-commerce is going to make it very easy for consumers to dig further into a product, to describe exactly what it is they're looking for and find something that's much closer to exactly what they need or want. There's been 20, 30 years plus of people using private label products and having experience buying a private label and seeing there's great quality there and feeling much more comfortable going down that path rather than feeling it's important to have a certain brand for certain categories.

11:59And so there's a shift there. You know, continued evolution of loyalty. I think all of this is going to carry through through holiday. Another thing we see with back to school, and it was interesting, these big summer promotional events that happened. What we actually did start asking in our surveys for back to school is, are you using these summer promotional events to start shopping for holiday. And we're seeing an increased number of consumers think that far ahead, right? Like six, seven months before a holiday, what they're going to buy and taking advantage of these promotional windows. So again, this idea that consumers getting much savvier and it's going to continue to lead into how you win during a competitive holiday season.

12:45You mentioned AI and AI search is certainly an opportunity a lot of retailers are looking at, There's the AI experience that's happening on site, and we're seeing a lot of e-commerce growth to your earlier point. The owned AI experience tends to be pretty popular with consumers. We're finding that in our own research as well. And agentic is a question that still hasn't really been answered, whether it's driving incremental growth for retailers and whether consumers have really adopted it or not. And so is AI search a large area of growth going out of 2026 and into the new year? I'd love to hear what your study has to say about that.

13:23But my next question really is, have we really accounted for what a consumer empowered with agentic AI tools will do? Because more automation in the holiday season and after that is, that's really where I'm interested in the second order effects beyond shopping, like returns and everything else that ends up on autopilot. So, you know, how can brands maintain relationships with consumers as their control begins to diminish? You know, we just we don't have as much control over the consumer journey anymore. And we've been talking about that for a while. So, yeah, what happens to the relationship when the consumer has, you know, that kind of leverage now?

14:06The trick with trying to stay connected with your consumers through, let's say, an AI channel. If we break up the channels, a way you can think of it is like your traditional brick and mortar, right? You have your digital channel, which is going to be your e-commerce or your mobile app. Maybe you can think of social commerce as a distinct channel, even though people are engaging with it through their mobile devices. It's sort of a separate channel from going to like your app for your brand. And then you're going to have engaging with them through an AI channel of some kind, whether it's just an AI interface or you have an actual agent or chatbot that they're interacting with or something there.

14:43The thing is, when you're now engaging with a customer, right, through social commerce, there's something about like the algorithm. You need to understand who your target consumer is and what that specific information is so that you can say, send information about my brand or product to these specific attributes. And then the algorithm goes and spits out and it finds a target customer. in agentic commerce it's going to be a little bit different because you're trying to say hey there's going to be a consumer who's looking for me either intentionally or they don't know they're looking for me intentionally but i want to be found in the discovery set of what they ask for when they prompt something so i need to make sure i'm describing my brand my product the attributes of the thing that i'm looking to sell in a way that will resonate with that consumer But I need to make sure that information is structured in a way that is easily identifiable by now an AI agent that's looking on behalf of that consumer.

15:43And so in this channel, you have to find this balanced mix of providing detailed specific information that an end consumer will recognize and appreciate to feel that you are really answering their question. but it needs to be structured in your data feeds the right way that an AI agent looking for stuff is going to find you before it finds alternatives that are also going to be presented to the consumer. Because the idea of anybody who's been using AI for themselves, you probably iterate a little bit, but you recognize when you ask it something, hey, I'm looking for a new pair of basketball sneakers.

16:20It's going to give you a couple suggestions. You're probably unlikely to be like, actually, give me the top 100 and give me time to go through. Like you're going to start leaning in and trusting what it's recommending because the more you use these AIs, the more it starts to know you. And even if there could be something better, you just feel comfort that it's giving you something that feels personalized and recommended to you. If you run operations or fulfillment at a growing brand, you already know this to be true. The customer just does not care where the marketing department ends its journey and the operations team takes over.

16:50Because if If the order arrives late or maybe tracking is not updating or the unboxing experience does not live up to their expectations, that is a brand level problem. And usually that becomes your problem because that is your job. And Ship Fusion wanted to give operators a better way to understand how their fulfillment experience actually compares to the rest of the market. So they placed and audited hundreds of actual real life DTC orders. And they looked at everything from checkout and shipping to delivery and unboxing. And then they turned all of that research into the DTC fulfillment experience quiz.

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18:13But you got to use our link shipfusion.com slash future commerce. Yeah, that's that's what we're hearing from a lot of folks, especially in high growth DTC. Where where do you where do your post purchase upsells go when an agent is doing the buying right? The digital basket and the path to purchase through AI, I think, remains to be seen. and I'm really excited to see how this plays out in this holiday season. You know, we measured it last year in our first AI consumer study and holiday attitudes there and their holiday usage of AI differed from expected usage of AI during the holidays. And the old models are still there.

18:59You know, people are still shopping. We see a lot of nostalgia and people are still going to stores There's some probably actually more so now. And there's some convenience to it, too, especially for folks waiting on those Black Friday deals. We did some boots on the ground reporting last year, Brian, around Black Friday and Cyber Monday through that whole weekend. And many consumers, even Gen Z, they were lining up for those traditional, you know, doorbuster type shopping events. And we'll see if they come back this year. Um, do you, do you see the culture of the holidays, things like nostalgia influencing the mindset of consumers and in turn, you know, how they're shopping right now?

19:39I do. Uh, I think there's something very sweet about the holidays and the fact that we can talk about sentiment. We can talk about these bigger factors that are putting pressure on people's households, but the idea of using the season to, um, celebrate with those that you care about, your friends, your family, whether it's gift giving or spending on experiences and bringing people together. I think the holiday always sort of recognizes that, whether you want to call it nostalgia, ideally it's just tradition. But I think we continue to see that. And this is also what tends to happen. Even the most pessimistic consumer going into a season is probably going to have a hard time not leaning into impulse when they see certain things in the holiday that trigger that feeling of connection of family of friends.

20:35And so I think that's another reason we see that disconnect. To your point also, I always like to share this other stat. It kind of goes back to what we talked about at the beginning of the conversation, which is what we're expecting to see during holiday spending. And I talked about the much higher growth rate we see in digital versus the growth rate we're seeing in physical. And this has been going on for a while. Everybody's like, of course, the physical store is starting to fade as digital continues to grow at rapid rates. But if we put this into nominal dollars, the physical store, people going to the mall, going to an actual store and shopping still makes up such a significant portion of the overall holiday spending.

21:18So to make it real, right, we have. 1.7 trillion dollars is what projecting is going to be spent this holiday season from one point like six three trillion dollars. So there's another like 70, 80 billion dollars worth of incremental growth just from that four point five percent we're talking about is forecast. The majority of that is coming from physical stores. Right. So we're actually going to see physical stores grow. That small 3.4%, 3.1 % that we talked about is going to be potentially over$50 billion of nominal growth this holiday season. While that much higher 7.5 % to 8.4 % growth in digital is going to represent a little over 20.

22:06So you can see one channel is growing faster, but from tradition, nostalgia, holiday spending is still dominantly in store. Yeah, 100%. And what I'm excited to personally track is how those younger demographics, especially as they're getting more wallet share and they have a bit more freedom, like especially among Gen Alpha, how that's going to tip things, if at all. because, you know, we've talked about Gen Z being the new mall rat. I mean, that's been widely covered. But what I find interesting is Gen Alpha is going to, you know, malls and, you know, shopping centers and they want to participate.

22:51Right. And it's not always just about the convenience, even though that's part of it. But it's about the culture that is built around these shared spaces and the holiday season in particular. particular evokes that and heightens it to a completely new degree where I'm sure they're more likely to not just shop for others, but shop for themselves. And those sales are going towards the experiences too. So we kind of saw that start to bubble up. We've been covering on future commerce, retailtainment quite a bit. So it's interesting to see what types of brands embrace that moment and what type of moments and environments they're trying to build around the traditions of the holiday season in particular.

23:35And I guess to that end, Brian, I mean, obviously, Deloitte always has a steady track of research, analysis, you know, that's coming down the pipeline. So knowing that we have this initial forecast, and we were able to dig into some of the numbers today, I mean, what else is in the pipeline? What else are you and your team excited to track, even compare year over year? Because I I know we've seen ourselves. It's incredible what a year can do in way of consumer norms and behavior. So what's in the pipeline and what can we look out for from you? Yeah. Two I'd probably point out. And this one, well, it's funny.

24:13We're talking about our holiday forecast right now. I like to live my life one holiday at a time. And one of my favorite holidays is coming up very, very shortly, Halloween. and so we're introducing our first halloween focused study uh so that'll be very fun to look at i think that holiday just it's just the whole point of halloween is like to have fun have a good time celebrate the community bring up the the creative you know and people and so i'm excited to share that one um and then our consumer holiday study which is different all right i think we've been talking about this concept between like sentiment and behavior.

24:55This is an economic study. So it's based on like true data, actuals in the past and signals that say there's a correlation between the social personal income and what we expect to see. But I think there's a lot to unpack in the consumer holiday study where we help share where people believe they're going to spend by category, by channel, and then dig into holiday a bit more. that's great well we'll definitely be keeping our our eyes open for sure philip right we're going to be covering a few things i'm sure as they come down the pipeline and we're excited to kick off our holiday coverage with you and with this data we'll link it up in the description below wherever you happen to be watching or listening and go check it out at deloitte brian thank you so much for joining us it's nice to actually have you here on the podcast yeah thanks very much appreciate it and thank you all for listening to this episode of future commerce find more episodes of this podcast at futurecommerce.com.

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