Walmart’s U.S. chief John Furner hailed the company’s Thanksgiving meal basket this year as “our best and most affordable yet,” at less than $4 per person. But people were angry when they realized how Walmart did it: The holiday deal contains fewer items than it did last year. Sweet potatoes, marshmallows, and corn muffin mix are gone. So are fresh onions and celery. Even pecan pie got the chop.
It is “a smaller serving dressed up as a savings,” wrote Jadrian Wooten, an economist at Virginia Tech. “Cheaper, yes. But also … less dinner.”
The meal basket reflects the multiple pressures facing retailers this holiday season in groceries and beyond. Companies have been been buffeted by three years of inflation, worsened by recent trade war tariffs. Shoppers, meanwhile, who have faced many of the same problems, are chasing discounts heading into the holiday season.
“Retailers will also face cost pressures from multiple fronts — tariffs, labor and logistics — challenging their traditional holiday planning and profit expectations,” EY wrote last month.
On one hand, consumer confidence is low. A majority of people polled by Deloitte this fall said they think the economy will weaken over the next 12 months, which is the worst outlook since the annual study began in 1997.
“We’ve been talking about the resilient consumer for a while now, that despite all these pressures, the U.S. consumer continues to spend,” said Brian McCarthy, retail strategy leader for Deloitte, last month. “This outlook is starting to suggest that we’re getting towards the end of that resilience.”
That pessimism is leaking into how much money people plan to part with this holiday season. Deloitte’s respondents said they intend on spending an average of $1,595, down about 10% from $1,778 this time last year, as they try to insulate themselves from expected price increases.
“Consumers across generations and income levels are putting value at the top of their holiday lists this year,” McCarthy told Quartz in an interview. That “may mean waiting for the best deal on their holiday shopping list, trading down on brands and retailers, or even re-gifting items.”
Retailers agree. Susan Morris, CEO of Safeway parent company Albertsons, said on an October earnings call that shoppers were already “trading down” to smaller items. “We see them sticking closer to their shopping list, maybe not buying that extra item, that extra bottle of whatever. They’re kind of shortening their list and sticking to it.”
To lure price conscious customers, retailers are discounting hard. Target said on Nov. 12 that it is cutting prices on 3,000 items for the holidays, up from 2,000 last year. Like Walmart, it’s leaning into grocery price cuts with a less-than-$20 Thanksgiving meal for four. Aldi is also advertising a $40 meal for 10, down from $47 last year.
Department stores are getting in on the act too. JC Penny is hiring comedians as part of a marketing campaign to riff on how good it thinks its discounts are. And high-end retailer Nordstrom has built a two-story area at its New York flagship store where it will showcase about 800 products that cost less than $100.
However, heavy price drops are not easy against a backdrop of sticky inflation, which was 3% in September from a year earlier, according to the Bureau of Labor Statistics. Grocery prices gained 1.4% between in the first nine months of the year, while U.S. consumer prices have risen 1.7% on average during President Donald Trump’s second term.
Trump’s tariffs bear some of the responsibility too, experts say. The Consumer Technology Association estimated that levies on consumer tech imports have driven average retail prices far higher than last year, by more than 30% for smartphones, 34% for laptops, and 69% for game consoles.
Festive items, many of which are imported from China, are especially vulnerable. Prices of artificial Christmas trees are up 26.9% compared to last year due largely to tariffs, while toys are up 20%, according to Mastercard. Fairy lights could be as much as 63% more expensive, said the Christmas Tree Association.
How this will affect customers “remains uncertain, as some retailers may choose to partially absorb these costs in order to remain competitive on price and volume,” Mastercard said in a recent report.
Costco CEO Ron Vachris appeared to give an answer on a September quarterly earnings call, saying the retailer had “really thinned down that whole category” of items such as toys and decor this year.
With margins coming under pressure, retailers are cutting costs elsewhere. Outplacement firm Challenger, Gray & Christmas estimated that employers will add less than half a million jobs in the fourth quarter, the lowest number in 16 years. Last year the figure was 543,000.
Stores “expect to do more with less,” said Jerry Sheldon, vice president at IHL Group. “This isn’t just caution, it’s a strategic pivot toward automation, cross-training, fulfillment technology.”
An ongoing shift from in-store to online shopping is also “naturally reducing some staffing needs,” Sheldon added. “Companies are determined to protect margins, especially with tariffs and other costs compressing profit.”
Some face a worse predicament than others. Target was forced to cut 1,800 corporate jobs last month after 11 straight quarters of falling or weak comparable sales growth. Earlier this year, its decision to roll back its diversity, equity and inclusion program led to calls for boycotts among some shoppers.
It’s not all bad news for retailers. The National Retail Federation has predicted that U.S. holiday sales will surpass $1 trillion for the first time this year — though admittedly much of that is expected to be from inflation rather than a sales bump.
Sucharita Kodali, a retail analyst at Forrester, said: “I don’t expect a great holiday season, but I don’t think it’s any worse than anything since the pandemic. Every year since 2020 has been plagued by consumer worries, high inflation, supply chain woes, or some sort of alarmist distress.”
Nonetheless, all signs point to a sector caught between two opposing forces, with soft demand on the one side and higher costs on the other. “This isn’t a season of exuberance or contraction,” said IHL Group’s Sheldon. “It’s a season of strategic, careful decision-making.”