A Looming Gloom: US Consumers Tighten Belts for the Holiday Season

With the holiday shopping season fast approaching, an annual survey released by Deloitte reveals a growing sense of economic unease among US consumers. The findings suggest that many are planning to curtail their spending during the festive season. Deloitte, in a poll of roughly 4,000 respondents, found that a majority of consumers (57%) expect the economy to weaken in the coming year. This represents the most negative economic outlook since Deloitte began tracking this data in 1997. In contrast, 30% anticipated a weaker economy ahead of last year's holiday season, while the figure stood at 54% during the Great Recession in 2008.

Rising Prices Fuel Concerns

Consumers are particularly concerned about rising prices. A staggering 77% of survey participants stated that they expect holiday goods to cost more, up from 69% last year. This coincides with the latest round of tariff hikes imposed by former US President Donald Trump on many imported goods. Brian McCarthy, Deloitte's retail strategy leader, suggested that the consumer resilience we've seen in the past may be waning. As a result, consumers plan to spend an average of $1,595, a 10% decrease from the $1,778 planned last year.

Gen Z Leads the Charge: Significant Budget Cuts

This trend is especially pronounced among younger shoppers. Generation Z consumers (ages 18 to 28) anticipate slashing their spending by an average of 34%. Millennials (ages 29 to 44) plan to reduce spending by 13%. McCarthy attributes this to the greater uncertainty felt by Gen Z in the early stages of their careers, coupled with inflationary pressures related to housing costs and everyday grocery prices. Mike Daher, Deloitte's US consumer industry leader, adds that this age group has not had the opportunity to accumulate significant savings or plan for a less optimistic economic environment.

Focus on Deals, Reduce Extras

This shift in sentiment has led consumers to actively seek out deals and reduce non-essential expenditures. Seven out of ten consumers reported that they are looking for deals by purchasing store-brand items, alternative ingredients, cooking at home, or buying secondhand goods. They are also planning to cut back on holiday-related spending beyond gifts, such as entertaining, apparel, and decorations, by 22%. While they plan to slightly decrease the number of gifts they buy (from nine to eight on average), they plan to spend more on individual gifts ($536 versus $505 last year).

Potential Impact on Retailers

These findings add an extra layer of complexity for retailers and brands during this crucial selling period. Other firms are also predicting a slowdown in spending, although consumers still express a desire to decorate their homes and give gifts. Bain & Company projects only a 4% increase in spending in stores and online, compared to an average growth of 5.2% over 10 years. Adobe Analytics forecasts a 5.3% increase in online spending, down from last year's 8.7% increase. A PwC survey also shows that Gen Z plans to cut back on spending by 23%. Overall, consumers expect to spend an average of $1,552 on gifts, travel, and entertainment, down 5% from last year.

Conclusion

As the holiday season approaches, it's clear that US consumers are exercising caution. Retailers will be closely monitoring consumer behavior to adapt to these changing circumstances.

Strategies for Navigating a Budget-Conscious Holiday Season

Given the expected tightening of consumer budgets, retailers and brands can implement several strategies to appeal to deal-seeking shoppers and maintain sales momentum:

• Highlight Value and Discounts: Clearly communicate price reductions, promotions, and special offers to attract budget-conscious consumers.
• Offer Flexible Payment Options: Provide options like buy-now-pay-later services to ease the financial burden of holiday purchases.
• Emphasize Experiences: Focus on selling experiences rather than just material goods, as consumers may prioritize creating memories over buying expensive gifts.
• Personalized Marketing: Tailor marketing messages to individual consumer preferences and budgets to increase engagement and conversion rates.