Inflation is down, over-taking the rate of wage growth in the U.S., and this bodes well for the retail market in 2024, which has mostly returned to pre-pandemic norms. That’s the message from a panel of experts speaking at the NRF’24 conference in the Javits Center in New York City on January 16.

At the panel, titled “The Consumer Outlook for 2024,” the Katharine Cullen, vice president, industry and consumer insights at the National Retail Federation (NRF), which hosted the briefing, led a discussion that skewed towards delivering a relatively optimistic note.

This was after a holiday season that began earlier and delivered better-than-expected signs of growth – U.S. Census Bureau data released January 17 shows that core retail sales during the 2023 holiday season grew 3.8% over 2022 to a record $964.4 billion. “That doesn’t sound great, but now you have nearly zero inflation in goods,” said Mark Matthews, executive director of research at the NRF. He pointed out that, during 2022’s holiday season, inflation was 3%. “So 3-4% growth is pretty good.”

Suzy Davidkhanian, vice president of content at Insider Intelligence, a market research company, said the retail market needed to take a “back to basics” approach, after the expect-anything mentality that predominated during the COVID-19 pandemic and its affect on consumer habits. “It’s still about: How do you get the right product to the right person and the right time, with minimal operational friction,” she said.

Matthews pointed out that ongoing wage growth has been particularly notable for low-wage earners, and that this demographic tends to immediately spend more extra income, when compared to higher-earning workers, who are more inclined to park it in savings or investments. That means more retail activity, at least in theory.

Jonathan Silver, CEO and founder of Affinity Solutions, a consumer purchase data and marketing consulting firm, said he thought perceptions of inflation, which tend to run ahead of economic realities, will calm down this year as inflation really does abate. However, much will depend on the price of gas, which has a disproportionate effect on shoppers’ willingness to spend, and is set for a volatile period this year as the impacts from the Israeli-Hamas war threaten to spread. “Gas is only 3% of household budget, but heavily influences how people think about the economy,” Silver said. Politics, too, will make a difference, as the two parties use inflation as a weapon in the battle for public sentiment. But election years are generally good for the economy, Silver argued, and in reality there is even deflation right now, with eggs and apples falling in price, for example.

Meanwhile, the spike in e-commerce appeared to be slowing down. Online and internet sales were up 25% during 2023, but still only account for 20%, compared to 80% of shopping done in brick-and-mortar scenarios. “For customers, it’s not one or the other,” said Silver. “And it’s still what you would have expected if there had been no pandemic, despite prognostications that everyone would shop online.”

Nevertheless, the gradual rise of e-commerce, with its higher rate of returns, will continue to present challenges. “Returns are a big margin drain,” said Davidkhanian. “You pay for the item to come back to you, and then you’re figuring out if you can resell it.” She said retailers will need to deploy new strategies and technologies such as artificial intelligence to make sure consumers really get what they want when they can’t touch it in person.

Another shift likely to be caused by technology is the vast amount of data now available about shoppers, far beyond point-of-sale information. “Retailers are beginning to look at data on what their customers are doing outside of their stores,” said Silver. “That’s great for data signaling.” However, government legislation on data privacy will have a strong role to play in how far that new capability goes. There’s no doubt it’s a potential gold mine. “It’s important to pay attention to how people are being entertained, and how they’re spending their time,” said Davidkhanian, pointing to the recent retail-entertainment partnership announced by French supermarket chain Carrefour and Netflix. “It’s so critical to understand how people are spending their money outside retail.”