Tariff Concerns Temper Consumer Sentiment Despite Retail Growth
By Jonathan Silver, CEO of Affinity Solutions
March Madness wasn’t just about brackets and buzzer-beaters, it was a month of economic twists and turns, with headlines as unpredictable as the tournament outcomes. (Better luck next year, Huskies!)
Following monthly declines in January and February, retail sales showed impressive gains in March. According to the CNBC/NRF Retail Monitor, powered by Affinity Solutions, total retail sales increased 4.75% year-over-year (YoY) and 0.60% month-over-month (MoM), with core retail sales (excluding auto and gas) growing 5.07% YoY and 0.40% MoM.
Underneath these figures, there are various dynamics at play as consumers adapt to market uncertainty, largely driven by trade policy disruptions. Despite the impact of significant tariffs on imports from China, Canada, and Mexico, March saw better-than-expected job growth, slight wage growth, and easing inflation – bolstering retail sales.
Even as consumer sentiment plummeted from 64.7 in February to 57.9 in March (a two-year low), our March spending data reveals a complex relationship between consumer behavior and confidence. While overall sentiment declined, March sales were up across all categories YoY and up in most categories MoM (seven of twelve), indicating a willingness to spend in certain areas.
Understanding spending trends in the context of the broader economic climate is critical for retailers hoping to get ahead in Q2.
Cautious Spending Meets Pockets of Optimism
Electronics & Appliances posted a notable 5.94% YoY increase, with only a slight 0.29% MoM decrease. Several factors contributed to the year-over-year growth, including continued strong consumer interest in smartphones, gaming equipment, and TV peripheral devices, as people embrace newer technologies.
The release of new products, like Apple’s new line of MacBooks and iPad Airs, could also motivate consumers to upgrade their existing devices in coming months. Anticipating upcoming price hikes, 17% of US adults have already made big-ticket purchases, with millennials and Gen Zers leading at 21%. Competitive promotions and product innovations targeted towards younger generations will help offset coming tariff-driven price hikes on laptops and smartphones.
In addition to electronics purchases, there’s also a strong appetite for digital content. The Digital Products category grew an impressive 27.62% YoY and 0.79% MoM, highlighting the popularity of goods like downloadable entertainment, e-books, and streaming services. Several popular games and shows launched in March, including Sunrise on the Reaping, the latest book in the Hunger Games series (with 1.2 million copies sold in the first week), the video game MLB The Show 25, and the addition of blockbusters Wicked and Moana 2 to streaming platforms.
Building & Garden Supplies saw little change (up 0.78% YoY and down 0.81% MoM), potentially due to cooler-than-normal spring weather and deferred spending amid anticipated price increases.
Wardrobe Refresh Sparks Retail Momentum
Another category showing both YoY and MoM growth (2.37% and 0.76% respectively), was Clothing & Accessories. Seasonal demand played a key role as shoppers refreshed their wardrobes with spring collections and took advantage of continued deals on winter clothing. A March Prosper Insights & Analytics survey found that 46% of consumers were “purchasing items like household appliances and clothing pre-emptively due to concerns that prices would rise from tariffs.”
Higher production costs due to tariffs on textiles and imported goods may pose pricing challenges in the months ahead, making value-based offerings and flexible pricing strategies essential. This could be a category where consumers may opt to trade down or forego spending, should prices rise significantly. A continued focus on the latest consumer purchase data will be particularly important to stay ahead.
Retailer Strategies for a Shifting Market
The March 2025 retail landscape was characterized by both resilience and caution. While discretionary spending will likely remain under pressure, consumers did show willingness to spend across categories like Restaurants, General Merchandise, and Sporting Goods (each posting slight gains both YoY and MoM) – even amid dismal consumer sentiment.
With solid consumer fundamentals like low unemployment and wage gains, retailers should continue to see modest spending growth. While questions tariffs and inflation will keep consumers on edge, retailers should be ready to react – but not over-react.
The arrival of spring, with its seasonal promotions and warmer temperatures, means more household projects, wardrobe refreshes, and positive trends for the Clothing & Accessories and Building & Garden Supplies sectors. Retailers may see an additional tailwind as consumers stockpile goods and materials before any significant price hikes take effect.
The strong labor market means consumers have discretionary dollars to spend. Retailers should leverage discounts and promotions targeted to key customer segments driven by real-time data, and consider investing in well-structured customer management and rewards programs to maximize their share of that spending.
