Retailers are gearing up for the most important time of their year: holiday shopping season. Those retailers are navigating tariffs — and an economy split between high-income and low-income consumers.

The consumer to watch is the cautious one, said Gregory Daco, Chief Economist at EY-Parthenon.

“We think consumers will be more conservative, more judicious when it comes to how many gifts they purchase,” Daco said.

He and a colleague released a new holiday retail forecast, based on income growth, prices, interest rates, and consumer confidence. They expect sales to grow — “modestly” — by 2.5%.

“That will largely reflect an increase in prices rather than an increase in volumes,” Daco said.

CFRA Research analyst Arun Sundaram is a bit more optimistic, especially about sales volume, based on how back to school season went this year.

“Certainly, prices played a role in it as well, but also just volumes or unit sales were strong,” Sundaram said.

He said retailers are adapting to bring in value-focused customers. At Target, for example, Sundaram said there will be more “entry level” pricing.

“Things like $20 clothing. You know, anything really that people buy as gifts,” Sundaram said.

Especially affordable store brands. And while tariffs make it harder for retailers to offer steep discounts, he said Walmart and Costco will use loyalty data and AI to deliver personalized deals.

“And that allows them to protect their margins while still appearing competitive on prices,” said Sundaram.

Which Sundaram said could result in a good holiday season, even if not a great one.