While signs point to strong consumer spending this holiday retail season, there are several factors that will add a few twists and turns to this year’s calendar, according to new research from Boston Consulting Group.
BCG’s 2024 Holiday Outlook Survey gathered insights from U.S. consumers and Mastercard Spending Pulse credit card data. The growth outlook shows mixed results. Some 28 percent of consumers plan to spend more than they did last year, 27 percent plan to spend less, and 45 percent plan to spend the same, according to BCG Analysis. A handful factors are playing into this modest growth outlook.
The research underscores that real consumption has continued to grow in the post-pandemic era, and American household incomes and balance sheets are strong relative to historical levels. In addition, both job growth and income growth are at similar levels to the pre-pandemic economy.
“But other factors keep the cheer in check: Despite positive indicators of economic growth, however consumer sentiment has fallen over the past two years,” the report noted. Ongoing geographical tensions, global military conflicts and the upcoming 2024 presidential election “are creating an environment of split attention for U.S. consumers,” said the report.
Further, BCG pointed out, high inflation, even with its recent cooling, has led to peak prices for consumer staples — tightening budgets for holiday shopping, and making for more intentional channel selection and deal-seeking throughout the season.
“Feeling uncertain but financially stable, households may choose to play it safe this holiday season but still spend as much as, or modestly more than, they did last year,” the BCG research noted.
Throughout the season, deal-seeking will be a core behavior.
Evan Angelastro/WWD
Last year, over half of U.S. holiday buying was completed before Thanksgiving. The peak holiday period (after Cyber Monday thorough Christmas Eve), hosted 36 percent of shopping. This year, a late Thanksgiving (Nov. 28) leaves only 27 days between Thanksgiving and Christmas, and five fewer shopping days compared to last year. Hanukkah is also later relative to 2023. It begins on Dec. 25 and ends on Jan. 2.
Secondly, there’s the U.S. Presidential election that takes place on Nov. 5. BCG noted that marketers are aware of several factors that lead up to major elections, including a crowded media market and higher costs due to increased competition. “These factors are now in full swing, as the election is already contracting supply and boosting prices for the best media spots likely to draw consumer attention. As a result, consumers’ attention will indeed be fragmented, with many less likely to think about their holiday shopping lists until their votes are in,” according to BCG.
The research noted that historical precedent suggests that the election is unlikely to drive a contraction in consumer spending, no matter which candidate wins. It said that in recent history, notable events that impacted consumer confidence were the financial crisis, the pandemic, and the last two presidential elections. “Of these four, only two triggered decreases in consumer spending (the financial crisis and the pandemic),” BCG noted. “In both cases the drop in consumer confidence was bipartisan, and spending took a meaningful hit. By contrast, during the last two elections, consumer confidence decreases were partisan rather than bipartisan — and consumer spending grew following both,” the research noted.
“Given this precedent, it is reasonable to predict that the election will have little ultimate impact on consumer spending, regardless of the outcome — but it could affect who is doing the spending and when,” the research noted.
BCG said in light of the calendar, retailers should keep several things in mind. One is the distinct early peak in spending ahead of Black Friday and Cyber weekend, and that these weeks are a “must-win” time frame for retailers. Two, the compressed peak season, the desire to wait out higher media costs around the election and fewer days between Thanksgiving and Christmas could create more active media and promotion competition during peak season. And three, winning strategies will be multifaceted throughout the season, with the first tactics deployed in October and a highly responsive approach during peak December shopping days.
BCG noted that among the trends that emerged during the pandemic was a major acceleration in weekday holiday shopping, which ultimately led to weekdays overtaking weekends in daily spending. But during the 2023 holiday season, there was a reversal and things seemed to return to “normal” with weekday spending shopping dropping slightly below Saturday and Sunday levels. Weekend shopping trips made a return to the American consumer routine and are expected to continue through the 2024 holiday season, predicted BCG.
The research noted that e-commerce was 40 percent more important during weekdays versus weekends during holiday 2023.
“With online shopping comprising 40 percent of weekday shopping, it is quickly approaching the status of primary channel for consumers making weekday purchases, and we wouldn’t be surprised to see online exceed 50 percent of weekday spending in the next two to four shopping seasons,” the study noted.
“Winning the holiday season and achieving growth targets in 2014 and beyond will rely more on weekday success online that on record in-store days on the weekend,” the report said.
The report also noted that throughout the season, deal-seeking will be a core behavior, in part a reaction to the higher prices across grocery and other non-discretionary categories.
Over the last three years, some channels struggled to keep pace with market growth while others accelerated unexpectedly. The pandemic era (2019-2022) saw modest customer growth for direct-from-brand stores and specialty retailers but both channels experienced significant acceleration last holiday season, and “continuing this trend, we expect them to continue to outgrow the total retail landscape this year,” BCG predicted.
Disruptor channels have found a solid foothold over the past two years, BCG said. While they remain small, both social media commerce and online marketplaces specializing in deals and gamification such as Temu and Shein are becoming increasingly formidable players. BCG noted that direct, social media and emerging marketplace channels see the most strength early in the holiday shopping season, but later in the season, shoppers turn to predictable fulfillment and competitive prices that mega-retailers and platforms are known for.