U.S. Shoppers Exhibit Caution Amid Economic Uncertainty

Holiday Shopping Season Looms

As Black Friday and Cyber Monday approach, U.S. retailers are bracing themselves for the year’s most significant sales period. These two shopping extravaganzas often account for half of many companies’ yearly revenue. But our new research indicates that deteriorating economic conditions and the recent inflation hike could stifle consumers’ holiday spending. Annually, we survey over 500 Americans, and this year, we found them excited about potential deals but also uneasy about rising costs.

A Glimmer of Optimism

A majority of surveyed shoppers anticipate this year’s Black Friday and Cyber Monday deals to be on par or better than the previous year’s offerings – a rise from 56% in 2022 to two-thirds in 2023. Adobe Analytics, a market research firm, had similar predictions, expecting record-breaking discounts this year. More consumers are planning to splurge on pricier items, and less are prioritizing necessities. Interestingly, the percentages of those planning to spend on big-ticket items remain stable at 15%, which is relatively low based on history.

This shift towards more costly items could spell worry for retailers. Historically, big-ticket items are among the top three categories where consumers spend their money during these shopping bonanzas. Moreover, most consumers — about 68.2% — plan to do most of their shopping online, and less than 11% are planning to set foot in physical stores.

Consumers Buttoning Their Wallets

In 2022, consumers were tightening their belts as though an economic crisis was unfolding. That trend is expected to continue this year, with high prices and inflation being the primary consumer concerns. Approximately 90% of respondents believe these issues will impact their holiday shopping. The average intended spend is around $665 — $35 less than the previous year and significantly lower than the 10-year average of $826 reported by the National Retail Federation.

However, not all is gloomy. Fewer consumers intend to spend less than the previous year (24.2%, down 10% from 2022). Close to 39% plan to keep their spending stable, accounting for inflation. Shoppers are planning more than ever, devising strategies to oversee their purchases, like sticking to shopping lists and spreading out shopping.

On an encouraging note for retailers, even though consumers plan to spend less, they showed more interest in branded and expensive gifts, which usually carry higher profit margins.

Financial Circumspection Prevails

About 50% of shoppers plan to use saved funds for their holiday shopping, while an equal percentage intend to use credit cards. Despite widespread adoption by major retailers, the usage of buy-now-pay-later options remains stagnant at around 15%. This points towards a cautious budget implementation by shoppers.

The Broader Outlook

Overall, there’s a mixed picture for this year’s holiday retail sea

son. Predictions from trade groups and economic analysts are varying, with some expecting pre-pandemic spending levels and others predicting careful spending. While Amazon seems optimistic, FedEx and Target are more subdued. This diversity is understandable considering the broader economic context — though the U.S. unemployment rate is relatively low (3.9%), over half of survey respondents are worried about job stability.

Despite economic concerns, shoppers will continue to demonstrate recession-like shopping behaviors. It’s on retailers to deliver genuine value this holiday season.

Authors: Ayalla A. Ruvio and Forrest Morgeson, both Associate Professors of Marketing at Michigan State University.