This holiday season in the United States is shaping up to be a story of two very different realities. While wealthier consumers in affluent neighbourhoods are opening their wallets, many others are being forced to tighten their belts, creating a stark divide in retail fortunes.
The Spending Power of the Affluent
For businesses catering to higher-income individuals, the 2025 holiday period looks promising. According to data from the HR firm ADP, average salaries have risen between 4.5% and 6.7%, depending on whether employees stayed in their roles or switched jobs. Furthermore, despite recent volatility, stock markets are up over 13% since the start of the year, benefiting those with investments.
This financial cushion is evident in wealthy enclaves across the country. In areas like New York, Boston, Washington DC, and San Francisco, the average household income exceeds $125,000—nearly $41,000 more than the national average. A walk through districts such as Soho, Georgetown, Presidio Heights, or Beacon Hill reveals restaurants packed with patrons, even with menu items like a $49 chicken parmesan or a $16 baked potato. High-end Las Vegas steakhouses continue to command $165 for a porterhouse, and luxury hotels, like a Marriott in Dana Point, California, are selling out at $750 per night.
The Squeeze on the Majority
In contrast, the outlook is considerably bleaker for a large portion of the population. An analysis from HR giant Paychex indicates that hourly wage growth for blue-collar workers has been tracking below 3% for over a year, currently standing at a modest 2.58%.
Van Hesser, Chief Strategist at credit rating agency KBRA, notes that the top 10% of earners account for 50% of all spending. The remaining 90% are contending with significant headwinds, including mounting credit card debt, an inability to participate in stock market gains, and the struggle to cover essential costs like rent, leaving little room for holiday splurging.
Adding to the pressure, promised tax rebates have not materialised, and job losses due to corporate restructurings and the integration of AI are creating widespread economic uncertainty.
What This Means for Retail
Major retail surveys reflect this growing divide. An S&P Global Ratings report anticipates holiday sales will grow by 4% in 2025. However, researchers caution that this increase is largely due to higher prices rather than greater volume, with real spending expected to remain flat when inflation is factored in.
Similarly, consulting firm Deloitte projects growth between 2.9% and 3.4%, which is below last year's 4.2% increase and the 10-year average of 5.2%. The reasons cited are consistent: inflation, tariffs, and general economic uncertainty.
"It's a tale of two economies," said KBRA's Hesser. He points to earnings misses from fast-casual chains like Chipotle and Cava, alongside decade-high unemployment for recent graduates, as evidence that less wealthy consumers are pulling back.
Hesser also warns that a potential correction in the equity markets could create headwinds across the entire consumer landscape, from everyday staples to discretionary travel and leisure.
For small businesses, for which holiday sales can constitute up to half of their annual revenue, the demographic and geographic location of their customer base will be critical. Those situated in affluent areas or serving the top earners will likely fare well. For everyone else, the 2025 holiday season promises to be a challenging test of resilience.
