Let’s not bury the lead: We expect US holiday retail sales to be up 6-8% for 2024.
This is great news for retailers! That said, this projection not only involves complex analysis, it raises several questions about the consumer behaviors behind this increase, and if they are healthy or harmful for the US economy.
In this article, I’ll dive into the factors that contribute to retail sales projections, including Simon-Kucher's new 2024 Holiday Shopping Report, in which 1,000 US consumers share their holiday spending plans for the season.
See here for holiday shopping insights and complete methodology.
The Gravity of Holiday Spending
Brands and retailers know this: Q4 is a big one. In fact, respondents in our industry leader survey said that, on average, 43% of their annual sales comes from Q4. And Q4 means “the holidays.”
The coming months will be crucial for companies and investors in determining whether they will meet their annual financial projections, with significant implications for shareholders.
All this to say, analyzing how “the American consumer” plans to spend this holiday season is a hefty responsibility, and one I personally take seriously.
Allow me to share my approach to my expectations for the holiday 2024 season.
2024 Holiday Spending Analysis
Factor 1: The consumer
First and foremost, understanding the consumer is the most important factor in predicting how their preferences and behaviors will affect market trends.
- INSIGHT: In Simon-Kucher's study, 1,000 US consumers weighed in on their planned spending for the 2024 holiday season, ultimately averaging $1,020 per household for holiday expenses, an increase of 8.4% year on year.
That said, there is no “typical consumer,” despite what we might infer based on mass consumer behaviors. We examine trends in consumer preferences and behaviors, incorporate demographics and psychographics of consumers, and analyze which traits of a consumer might carry the most influence on how they decide to spend their money.
In our study, we took especially close care to analyze holiday spending projections by household income and generation, demographics which have historically painted wide ranges of consumer behavior.
For example, because household income is not evenly distributed across the US population, we examined holiday spending projections to US income distribution considering $75,000 as a dividing line. (Nearly half of the US population has a household income of less than $75,000 per year.) Consumers below that line are increasing holiday spending roughly $40 year-over-year compared to a $170 increase for those who earn more. Thus, higher-income households are spending 4.25 times what lower-income households are. While this may seem obvious, the nuance is that spending does not linearly correlate with household income and tapers off as income increases.
Similarly, we examined planned spending by generation. Younger consumers are naturally more price-sensitive and look to stretch their dollars. Thus, their participation in “deal days” like Black Friday and Amazon Prime Day is expected to be higher.
What we found surprising is the magnitude by which they over-index other generations across all major promotion days and on average participate in five events throughout the year. Even more surprising is that Gen Z plans to increase their spending by almost 21% in 2024 for the holiday season compared to last year.
- INSIGHT: Gen Z consumers plan to increase their 2024 holiday spending 21% over 2023, followed by millennials, who plan to increase spending by 15%.
These insights bear the question: How can younger consumers afford to increase their holiday spending so much more than their older counterparts?
Exploring: Doom Spending
If you haven’t yet heard of “doom spending,” it’s a term that describes a coping mechanism for stress, often involving impetuous purchases that offer short-term delight but can cause long-term financial strain. It’s more than just “impulse buys” or “retail therapy,” however. Doom spending represents a consumer state of mind that doesn’t value money beyond the near future. Money, in this case, is intended to be spent and not invested.
And Gen Z and millennial consumers are perpetrating doom spending in a way that Gen X, Baby Boomer, and older consumers are not. (CNBC has a great article on this.)
What is causing Gen Z and millennial shoppers so much “doom”?
Macroeconomics, including fears of inflation and recession
- 90% of Gen Z and 85% of millennial consumers say they have changed their shopping behaviors in the past 1-2 years in response to inflation, compared to 77% of Gen X and 69% of Baby Boomers who said the same.
- Additionally, slightly more young consumers consider the US economy to be in recession: 55% of Gen Z, 57% of Millennials, 52% of Gen X, and 43% of Baby Boomers all believe the US is in a recession.
Politics and current events
- When asked whether they expect the outcome of the US Presidential election to affect their holiday spending, 48% of Americans said it would. Among Gen Z, 63% said it would, as did 55% of Millennials. On the other hand, 46% of Gen X and just 31% of Baby Boomers said the same.
So, do we see the effects of “doom spending” in holiday shopping projections?
Yes.
- As noted above, Gen Z and millennial shoppers plan to increase holiday spending substantially more than older generations.
- They also plan to increase overall discretionary spending much more than their older counterparts: 33% of Gen Z consumers and 32% of millennials plan to increase discretionary spending in the coming year while just 16% of Gen X and 15% of Baby Boomers will.
- When it comes to the influence and impulse buy-enabling nature of social media, younger consumers are much more likely to purchase than older ones; 26% of Gen Z, 20% of millennials, 11% of Gen X, and just 3% of Baby Boomers will purchase holiday gifts from social media sites.
- When it comes to payment methods, Gen Z and millennial consumers are 2 to 4 times more likely than Gen X and Baby Boomers to use “buy now, pay later” or layaway programs, take out a loan, ask for an advance on their paycheck, or borrow money from family or friends in order to purchase holiday gifts.
By and large, Gen Z and millennial consumers indicate a more carefree attitude toward spending this holiday season – and beyond.
Still, what consumers say they’ll do and what they actually do is often different. Let’s walk through the other key factors to get a more complete picture of holiday spending projections for 2024.
Factor 2: Past industry trends and current economic context
As we enter the 2024 holiday season, Simon-Kucher’s sixth annual Holiday Shopping Report offers a wealth of multi-year trend data to analyze, drawing from consumer behaviors over the past five years as impacted by the world those consumers lived in at the time.
Historically, the retail industry has been marked by significant volatility. The COVID-19 pandemic created an unusual spike in consumer spending during 2020 and 2021, driven by stimulus payments, supply chain concerns that created an inability to meet the growing demand, and increased online “anytime and anywhere” shopping. However, post-pandemic years saw dips in sales growth as inflation concerns peaked in 2022 and 2023 and higher inflation rates caused consumers to pull back their spending. This rollercoaster of demand makes the data in this year’s report particularly useful for identifying longer-term trends.
Looking at the 2024 economic context, several key factors are in play. The Federal Reserve’s decision to cut interest rates this year aims to stimulate economic activity, which could potentially lead to increased consumer spending during the holiday season. Additionally, inflation, though still present, appears to be cooling, which might restore consumer confidence and purchasing power. However, ongoing uncertainties, such as the outcome of the U.S. presidential election, add a layer of unpredictability. Political transitions historically create a degree of consumer hesitation, and this year could be no different.
Factor 3: Six years of history and 12 years of experience
With over 12 years of experience working alongside a diverse set of retailers and conducting a continuous stream of research on consumers, I’ve developed a nuanced understanding of how industry trends evolve and impact holiday retail sales. This depth of expertise allows me to identify patterns that may not always be apparent in surface-level data.
My experience, plus six years analyzing US consumer holiday spending for this annual report, emphasize another key insight: consumers often overstate their intended holiday spending, driven by optimism that can wane as the season progresses. Also, as paychecks are evenly distributed (for the most part outside of holiday bonuses), there is a mismatch between the desire to spend and the reality of bills and daily expenses.
In predicting 2024 sales, analysis of consumer segmentation and demographic trends is crucial. This year, "doom spending" is particularly noteworthy to me. Understanding which demographics are most prone to this behavior - such as younger generations heavily influenced by economic uncertainties - will provide valuable foresight for retailers.
In conclusion
I remain cautiously optimistic about the 2024 holiday retail outlook, with projected growth of 6-8%. From my experience working closely with retailers, I can tell you that consumer sentiment is always tricky to gauge, especially when Gen Z and millennials are driving much of the increase. This behavior, while giving a short-term boost, could have negative consequences for their financial health and broader economic stability.
Economic factors like the Federal Reserve’s recent rate cuts and the moderation of inflation are helpful, but we can’t ignore the looming uncertainty around the US presidential election. Retailers and investors need to keep a close eye on how these dynamics play out because, as I’ve seen over the years, consumer optimism can fade as quickly as it rises. Retailers who leverage trend data while staying nimble will be best positioned for success this holiday season.
For additional information, including strategic recommendations for retail industry executives and complete report data and methodology, please contact pr-inquiries@simon-kucher.com.