Source: Retail Dive
Date: 23rd September 2025

Rising prices and weakening consumer confidence highlight a widening spending divide across households.

Retailers and brands have been raising prices selectively throughout 2025 to counter tariff-driven costs, but as the holiday season approaches, balancing margins with consumer demand is becoming more difficult.

Major chains emphasised earlier this year that price hikes would remain a last resort, yet many are now watching competitors closely to decide how much they can adjust without losing their value positioning.

Analysts note that while retailers aim to protect profitability, shoppers are already showing signs of strain from higher prices and labour market uncertainty.

According to recent data from Moody’s Ratings, consumer spending growth has slowed significantly compared to late 2024. Real personal consumption rose just 2.2% year over year in July, with August sales in discretionary categories showing modest gains in value but stagnant volumes.

Moody’s forecasts suggest lacklustre spending through 2025, with recovery not expected until late 2026. The divide between income groups is becoming more pronounced: lower-income households are prioritising essentials like groceries, while wealthier households continue to purchase higher-end goods despite rising prices.

Luxury categories are seeing the steepest increases. Research shows that mid-tier handbags rose 14% year over year, women’s sneakers 12%, boots 9%, and denim jackets an outsized 34%.

Analysts at Wells Fargo caution that tariff-related price pressures are intensifying as the fall and holiday season approach, raising concerns for retailers serving lower-income consumers. While overall demand has held up for now, the coming months will test how much elasticity shoppers can tolerate before cutting back more sharply.