By Sabrina Escobar

Even as Americans pause for a day of Thanksgiving, the holiday shopping season is shaping up once again as a tale of haves and have-nots

Although many forecasters predict solid sales growth from November through year-end, they warn that the spoils will be spread unevenly, reflecting winners and losers among both consumers and retailers.

Lower-income families have been hurt by the recent federal shutdown, tariff-related price increases, and a slowing labor market, and are expected to spend less this year on travel, gifts and holiday decor. Higher-end shoppers, meanwhile, are being buoyed by a rising stock market, growing home equity and sometimes pay increases as well.

It's all part of what economists call the K-shaped economy, in which purchases from affluent shopper shoot up like the upper arm of the K, even as purchases from lower-income Americans droop like the bottom arm of the K. For investors, this explains why both luxury retailer Hermès and discount king Walmart are growing revenue at a healthy clip even as sales at middle-market merchants like Kohl's and Bath & Body Works are hurting.

Households making more than $250,000 a year now account for roughly half of all consumer spending and almost a third of gross domestic product, according to an analysis by Moody's Analytics. And as their lower-income countrymen curb their spending, the affluent are going to be "called upon to drive more of the sales and more of the visits this holiday season," said R.J. Hottovy, head of analytical research at Placer.ai.

Higher-income consumers appear up to the task. Soaring stock prices and home-value appreciation have padded wealthier households' balance sheets. As a result, the National Retail Federation, a retail trade group, expects retail sales to increase by between 3.7% and 4.2% year over year from Nov. 1 through Dec. 31. Other forecasts have placed growth estimates in a similar range.

That said, most holiday forecasts aren't adjusted for inflation, which is up about 3% on an annual basis. That means the lion's share of the season's headline growth will be driven by price increases rather than the purchase of additional units, reflecting some of the underlying weakness of this year's sales.

The K-Shaped Holiday

The macroeconomic uncertainty created by constant changes to trade policy, shifting labor market dynamics, and the government shutdown, which delayed official economic data releases, has made it hard for forecasters like the NRF to nail down their spending outlooks for the holiday season.

That same uncertainty is weighing on shoppers. Consumer sentiment, a gauge into how Americans feel about the economy, is hovering near record lows as households fret about day-to-day affordability. Inflation is a key concern: Although the annual rate of inflation has come down from its highs in 2022, tariffs have started edging prices higher. And for households still trying to absorb the increases of the past five years, any inflation at all is hard to digest.

Lower- and middle-income households, who are more likely to live paycheck to paycheck, have been especially vulnerable to price fluctuations. Nascent concerns over the labor market weakening has prompted many to rethink spending plans. A Deloitte survey of 4,720 consumers found that lower and middle-income households were planning on reducing their total holiday spending by 24% and 13%, respectively, from a year ago. To afford gifts, they are planning to cut back on decorations, new outfits, and dining out.

"The consumer will prioritize what goes under the tree versus what goes on the tree," said Rick Gomez, Target's chief commercial officer, on a call with reporters last week.

While not immune to the macro challenges, wealthier households have had more leeway to spend. In October, spending among high-income households grew 2.7% in October from a year prior, according to Bank of America credit- and debit-card data, while spending for lower-income groups lagged behind at a 0.7% increase.

Rich Americans' net worth has expanded in the past few years, buoyed by wage gains, rising home prices, and importantly, a record-breaking stock market, says Charlie Wise, head of global research and consulting at TransUnion. Indeed, consumer sentiment readings dating back to 2018 suggest that stock market participants tend to have a better view of the economy than nonparticipants.

2026 may bring more fuel to wealthy households' shopping engines. President Donald Trump's One Big Beautiful Bill carries a slew of tax breaks and new deductions that could be a welcome windfall for the affluent come tax season, further bolstering their drive to spend.

Betting on the K

Investors should keep these dynamics in mind as they position their portfolios for the end of the year. Stocks that cater to either end of the K will likely come out ahead, while those stuck in the middle will struggle.

Luxury stocks are a good way to play to the top. Although the sector has suffered in the past two years from soft demand for high-end goods -- the S&P Global Luxury Index has gained about 16% to the S&P 500's 47% gain in the past two years as of Monday's close -- many luxury brands recently said global sales improved in the third quarter, including in the U.S. Importantly, brands said that modest tariff-related price increases hadn't dampened the resurgence.

"Trade wars have shocked the system of both luxury brands and their shoppers, so these gains are a strong sign that the core luxury consumer will keep spending," wrote Claire Tassin, a retail and e-commerce analyst at Morning Consult.

Over the past few years, Hermès has been one of the best performing pure-play luxury stocks given its strong appeal among the uber-rich. But with the stock recently trading at 44.4 times the next 12 months' earnings, shares are looking as pricey as its bags. LVMH Moët Hennessy Louis Vuitton's P/E ratio of 26.6 seems more palatable, especially as its sales recently returned to growth.

Younger shoppers are emerging as an important driver of growth for the industry, Morning Consult's data suggests, with wealthy millennials and Gen Z adults leading demand for high-end apparel. To capitalize on that trend, consider Ralph Lauren or Tapestry stock. Both companies have been gaining market share among younger shoppers, and have recently flagged that their momentum was strong heading into the holiday season.

At the other end of the K, discounters are winning big. Greg Halter, director of research at Carnegie Investment Counsel, thinks Amazon.com and TJMaxx parent company TJX could benefit from consumers' value-centric mindset. Walmart is another standout: the company recently raised its full-year guidance to reflect continuing sales growth, fueled by market share-gains across the income spectrum.

"Walmart is better insulated than just about anybody given the value proposition that we have," said Chief Financial Officer John David Rainey. "If pocketbooks are being stretched and consumers are being choiceful and value-seeking, it stands to reason, if there's more pressure on the consumer, they're only going to become more so."

In contrast, retailers that fail to provide strong value will struggle to attract consumers. Morgan Stanley analysts flag Tommy Hilfiger, Calvin Klein parent company PVH, as a potential laggard, citing a slowdown in sales in recent weeks and elevated inventory levels that may lead to higher markdowns down the road.

UBS analyst Jay Sole is bearish on Kohl's stock, writing in a note Monday that the company's " well below average growth" hasn't been fully priced into the heavily shorted stock. Its 51% gain this year is more a reflection of renewed interest from retail investors looking to spark a so-called short squeeze rather than improvements in the company's business fundamentals.

Bath & Body Works sees trouble ahead; the company just slashed its guidance for the full year, reflecting a pull back in demand from inflation-strapped consumers. CEO Daniel Heaf lays out the conundrum facing many households this holiday season: "Do I want to put food on my table, or do I want a candle?" he said on a call with Barron's. "I think that becomes a pretty binary choice."

Write to Sabrina Escobar at sabrina.escobar@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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November 26, 2025 01:00 ET (06:00 GMT)

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