Retail Holiday Sales Surge 3.8% Despite Economic Headwinds

Retail stocks in the U.S. surged on Wednesday as investors reacted to new data showing a 3.8% increase in holiday sales, according to a Mastercard report. The rally has pushed retail indexes into record territory, buoyed by strong consumer spending and a focus on value-driven promotions.

The Mastercard SpendingPulse report, which measures in-store and online retail sales across all payment types, revealed that U.S. retail holiday sales excluding automotive increased by 3.8% year-over-year from November 1 through December 24. This growth was driven by a consumer base seeking value and responding to promotions during the November and Black Friday shopping period, as well as the run-up to December 24.

Michelle Meyer, chief economist at Mastercard Economics Institute, noted that "The holiday shopping season revealed a consumer who is willing and able to spend but driven by a search for value, as can be seen by concentrated e-commerce spending during the biggest promotional periods." This focus on value and promotions was a key factor in the increase in retail holiday sales.

The shift towards e-commerce and digital-first shopping also contributed significantly to the growth in retail holiday sales. Online retail sales grew 6.7% year-over-year, outpacing the 2.9% increase in in-store sales. This trend was particularly evident in the Apparel sector, which showed a strong lead in e-commerce sales with a 6.7% growth for online purchases compared to last year.

Consumers increasingly preferred digital-first shopping this year, with e-commerce, curbside pick-up, and delivery being top-of-mind for the festive season. This preference was further validated by the fact that the last five days of the holiday season accounted for 10% of all holiday spending, indicating a compressed calendar and a surge in late gift shopping.

Moreover, specific cities in the U.S. embraced e-commerce more than others, with Tampa (+10.6%) and Phoenix (+10.0%) leading with double-digit digital growth, followed by Minneapolis (+8.9%), Dallas (+8.4%), Charlotte (+7.9%), Orlando (+7.8%), and Houston (+7.6%) coming in well above the national total for e-commerce sales compared to 2023. This regional variation in e-commerce adoption further underscores the significance of digital-first shopping in driving retail holiday sales growth.

The compressed holiday shopping calendar, with 26 days between Thanksgiving and Christmas in 2024 compared to 31 days in 2023, sparked a surge in late gift shopping. According to Mastercard SpendingPulse, the last five days of the holiday season accounted for 10 percent of all holiday spending. This trend indicates that consumers waited until the last minute to complete their holiday shopping, likely due to the shorter shopping period and the desire to find the best deals. The concentrated spending during the biggest promotional periods, such as Black Friday and the run-up to December 24, further supports the notion that consumers were motivated by deals and promotions.

The increase in dining out and spending on goods like apparel, jewelry, and electronics also contributed to holiday sales growth during the 2024 holiday season. According to Mastercard SpendingPulse, restaurant spending growth was up 6.3% compared to last year, indicating that consumers were more willing to spend on experiences and dining out. Additionally, spending on goods such as apparel, jewelry, and electronics saw notable increases. Apparel sales grew by 3.6%, jewelry sales increased by 4.0%, and electronics sales rose by 3.7%. These increases in spending on goods and experiences contributed to the overall 3.8% year-over-year growth in retail sales, excluding automotive, during the holiday season.

Investors should take note of these trends and consider allocating a portion of their portfolios to retail stocks that have shown strong performance and growth potential. Some retail stocks to watch include Amazon.com, Inc. (AMZN), Abercrombie & Fitch (ANF), Target Corporation (TGT), and Carvana Co. (CVNA), which have seen positive earnings estimate revisions in the last 60 days and have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

In conclusion, the 3.8% increase in retail holiday sales, driven by a focus on value and promotions, the shift towards e-commerce, and the compressed holiday shopping calendar, bodes well for the retail sector and its stocks. Investors should consider capitalizing on this growth potential by investing in retail stocks with strong fundamentals and growth prospects.