Department Stores NAICS 455110

May 5, 2025 - Slower Growth Projected

• The US department stores industry is projected to grow at a CAGR of 2.9% between 2025 and 2029, according to a forecast from Inforum and the Interindustry Economic Research Fund, Inc. The expected growth rate is slower than the overall economy‘s anticipated growth. The retail and wholesale sectors are driven by consumer spending, along with expenditure by businesses and government. A factor that may limit consumer spending is higher tariffs on consumer goods. On a positive note, lower inflation supports a moderate increase of real disposable income by about 2% in 2025 and 1.9% in 2026. Real income could suffer to an extent if average prices rise due to tariff implementation. The forecast said retail spending could soften with the growth of spending on consumer services.
• According to a report in CFO Dive, consumer sentiment, an indicator of department store spending, fell in large part due to tariff uncertainty and an expectation of higher prices. The final index of consumer sentiment from the University of Michigan dropped 8% in April 2025 from the previous month. An index measuring consumers’ expectations for the future fell nearly a third since January, the steepest three-month percentage decline since the 1990 recession. According to survey director Joanne Hsu, “Consumers perceived risks to multiple aspects of the economy, in large part due to ongoing uncertainty around trade policy and the potential for a resurgence of inflation looming ahead.”

• Department stores, which rely heavily on goods imported from China, are preparing for the wide-ranging impacts of recent Trump administration trade policies. The Trump administration’s duties on China have risen to 145% in recent months. Anticipating the tariffs, US retailers began stockpiling goods before the costs went up. Per CNN, retailers’ inventory levels were 2% higher in the third quarter of 2024 compared to a year ago. Supply chain disruptions to avoid tariffs can be expensive and time consuming. For example, Macy’s has moved production of its private brand products out of China, according to Home Textiles Today. Department stores will incur higher procurement costs for international sourcing, and most will pass along the costs to consumers. The tariffs could have a chilling effect on consumers who reduce spending on non-essential products in anticipation of higher prices across a range of products and services.
• Long-tail effects from Covid-19 on retailers include fewer hirings, and higher store closures and bankruptcy filings, according to a recent report in Retail Dive. Store closures are expected to be worse in 2025 than in 2020. Per Coresight data, 15,000 stores are expected to permanently close in 2025 compared to 9,698 in 2020 at the height of the pandemic. The high levels of closures are due to a combination of factors including the lingering effects of the pandemic, a weak housing market, the overflow impacts from bankruptcies, and competitive pressures from companies such as Temu. The pandemic environment and its recovery period caused tremendous stress for some retailers, which is still driving retail bankruptcy filings. Hirings in 2024 were 40% lower than in 2019, as the pandemic shifted how firms staff and operate their stores. Retail staffing decisions are also influenced by ongoing economic uncertainty and falling consumer confidence. The pandemic kicked off explosive growth for e-commerce; e-commerce as a percentage of total retail sales (excluding automotive) grew from 15% in Q4 2019 to 22% in Q4 2024. The e-commerce growth curve is maturing and expected to plateau around 35% in the next decade, according to a report from FTI Consulting. In addition, hard-hit categories such as electronics and home goods, which suffered some retail whiplash due to consumers’ pulling back on spending mid-pandemic, may be close to a recovery.