US retail sales growth is expected to slow to 3% this holiday season, according to Bain & Company’s annual US retail holiday forecast.

The consulting firm projects retail sales in November and December will reach $941 billion. The estimated 3% growth figure is significantly lower than the 10-year average of 5.2%.

In-store sales will remain relatively flat at 0.5% – the lowest growth rate since the Great Recession. Bain expects department stores, sporting and hobby stores, and furniture, building, and gardening stores will experience negative single-digit growth.

Approximately 90% of growth this holiday season will be driven by non-store sales, with a slight decline to 9.5% growth year-over-year.

Source: Bain & Company

According to Bain’s consumer health index, US households across all income cohorts reported worsening financial outlook, with shoppers allocating more of their wallet to inflated non-discretionary spending in areas such as food, housing, and healthcare.

However, an economic soft landing from a period of high interest rates and inflation is still in the cards, and may help the retail outlook.

“It’s been a relatively slow year for US retail, as consumers have grappled with rising costs and growing unemployment,” said Aaron Cheris, partner in Bain & Company’s retail practice. “Nonetheless, interest rate cuts and a strong stock market performance could help to bolster consumer confidence, potentially contributing to at least modest sales growth.”

Bain offers several ways for retailers to outperform this holiday season. Retail companies should strive to emphasize value at every price point; entice consumers with personalized marketing and timely promotions; showcase exclusive products and partnerships; provide fast shipping and easy returns; and use excess store capacity to meet digital demand.