Core Insights - The upcoming holiday season is critical for retail, influenced by changing consumer behavior, persistent inflation, and disparities in household spending [1] Consumer Spending Trends - Total card spending per household increased by 2.4% year-over-year in October, marking the strongest growth since early 2024 [2] - Holiday-specific spending per household rose by 5.7% compared to the previous year, although retail transaction volumes have been declining since January, indicating inflation may be driving spending rather than increased demand [3] Income Disparities - Spending growth in October was primarily driven by services, with retail purchases excluding gas and dining contributing only a quarter of the growth [5] - Higher-income households experienced a 2.7% year-over-year increase in spending, supported by a 3.7% rise in after-tax wages, while lower-income households saw only 0.7% growth with a mere 1% increase in wages [7] AI in Retail - This holiday season may see the mainstream adoption of artificial intelligence as a shopping tool, with significant increases in AI-driven referrals to retail websites [8][9] - Retailers like Home Depot and Etsy are experiencing a notable portion of their referral traffic from AI, with 17% of U.S. shoppers indicating they will use an AI agent this season [10] Retail Sector Performance - The State Street SPDR S&P Retail ETF has risen by 6% year-to-date, slightly outperforming the broader Consumer Discretionary Select Sector SPDR Fund [11] - Notable performers include ThredUp, National Vision Holdings, and Carvana, while companies like Deckers Outdoor and Bath & Body Works have faced significant declines in stock performance [12][13]