The Holiday Spending Divide: Winners, Losers, and What’s Driving Consumer Choices
As the holiday season kicks into full swing, shoppers are spending—but with a more discerning eye. Retailers are banking on party outfits, beauty products, and toys to drive sales, but not all are reaping the rewards. A significant divide has emerged: while some brands are flourishing, others are struggling to capture consumer interest.
What’s driving this disparity? Understanding what today’s cautious consumer values and delivering on those needs. As inflationary pressures ease and the economy shows signs of stabilization, spending behaviors are evolving, and retailers must adapt quickly to stay ahead.
Winners and Losers of the Holiday Retail Race
Recent earnings reports paint a clear picture of this divide. Retail powerhouses like Walmart, Dick’s Sporting Goods, and Abercrombie & Fitch are reaping the benefits of consumer optimism and targeted strategies. On the other hand, Target, Kohl’s, and Best Buy are facing disappointing results despite heavy early holiday promotions.
This stark contrast is largely a reflection of how inflation has reshaped consumer habits. Although inflation has cooled in recent months, the impact of rising prices over the past two years has made consumers more selective with their discretionary spending. As Neil Saunders, managing director of GlobalData Retail, explains:
“People are still spending, but they perhaps don’t have as much to spend. So rather than buying five things, they might be buying three things. In that environment, weaker retailers are the first to be cut out.”
Holiday Spending Trends: Practicality, Value, and Smart Choices
According to the National Retail Federation (NRF), holiday sales in November and December are expected to grow 2.5% to 3.5% compared to 2023, reaching between $979.5 billion and $989 billion. This is a more conservative increase than the previous year’s 3.9% rise, indicating that consumer caution is still very much in play.
Shoppers are prioritizing practical purchases, looking for items that provide tangible value rather than novelty. GlobalData’s Saunders notes:
“Customers want gifts with practical value. They’re moving away from meaningless purchases like novelty socks or gimmicky games. They’re asking, ‘Is this useful?’ before they buy.”
This shift in priorities has worked in favor of retailers with a strong focus on quality and relevant offerings:
- Walmart: Walmart's strong performance in general merchandise sales is a testament to its ability to adapt. Easing inflation on groceries, along with the expansion of its third-party marketplace, helped push its general merchandise sales up for the second consecutive quarter.
- Abercrombie & Fitch: By tapping into strong demand for its holiday merchandise early, Abercrombie raised its full-year outlook, setting an optimistic tone for the season.
- Dick’s Sporting Goods: Dick’s has been able to capitalize on a mix of popular, high-demand items, driving it to raise its full-year forecast.
The Struggles of Traditional Retailers
Department stores and retailers like Target, Kohl’s, and Macy’s face a tougher holiday season, especially since they predominantly sell discretionary items—“wants” rather than “needs.” Target, despite its efforts to attract shoppers with exclusive collaborations like Wicked-themed merchandise and Taylor Swift vinyl, expects flat sales for the holiday quarter.
Kohl’s faces its own challenges, particularly around overstocked inventory. Items like clothing and appliances, such as air fryers, are on display, but without robust foot traffic, they risk being marked down. Marshal Cohen, chief retail advisor for Circana, warns that if customers don’t show up in force, those items could land in the clearance section.
“If shoppers don’t show up in full force, those items will end up on clearance racks,” he cautions.
What’s Driving Consumer Choices This Year?
Retail experts agree that value is the key to winning this holiday season. It’s not just about low prices—shoppers are looking for quality, novelty, and relevance. To stand out, retailers need to offer products that resonate with consumers' desire for practicality and lasting appeal.
Additionally, experiences are taking center stage this year. Following a pandemic-driven shift, consumers are increasingly prioritizing experiences over material goods. Retailers offering experiential gifts or bundling products with services are more likely to succeed.
Hospitality Feels the Festive Boost—But at What Cost?
Beyond retail, another sector that sees a significant uptick during the holidays is hospitality. Early festive socializing has boosted sales in bars, pubs, and clubs, with the hospitality and leisure sector up by 4.7% in November alone, according to Barclays. This marks the highest growth in this category since July, as consumers flock to venues for pre-Christmas celebrations and social gatherings.
Related: How to Shop for Preloved Items as Perfect Christmas Gifts
However, the hospitality sector isn’t without its challenges. New analysis reveals that insolvencies in the hospitality industry have risen by 5% year-on-year, reaching their highest levels in a decade. The number of hospitality businesses facing insolvency increased from 3,490 in the 12 months leading up to September 2023 to 3,679 during the same period to September 2024.
This rise in insolvencies is a stark reminder that, despite the festive mood, many hospitality businesses continue to struggle under the weight of rising operational costs, staffing shortages, and changing consumer preferences. While some venues are thriving, others face a harsh winter as high overheads, coupled with economic uncertainty, put added pressure on their survival.
Retailers and Hospitality Providers Face an Uneven Holiday Landscape
Despite the challenges, both retail and hospitality sectors are well-positioned to capitalize on early holiday spending. To stay competitive, retailers must offer value-driven, practical gifts that resonate with today’s smart shoppers. In contrast, hospitality venues need to continue providing memorable, festive experiences that attract both regular patrons and seasonal revelers.
But with consumer budgets tighter than ever, only those who adapt to shifting priorities—whether in retail or hospitality—will thrive in this year’s holiday season.
Related: 2024 Netflix Christmas Movies: Every New Holiday Film and Special Coming This Year
How Retailers and Hospitality Venues Can Thrive This Holiday Season
Retailers and hospitality businesses that are most likely to succeed this season will focus on the following:
- Value Perception: Offering quality at competitive prices is key.
- Practical Gifts and Services: Items that offer utility or experiences that enhance daily life will have the edge.
- Experiential Offerings: Shoppers are prioritizing experiences, so both retailers and hospitality businesses can capitalize on this trend by offering memorable experiences, whether through gift bundling or festive social gatherings.
This year, consumers are not just spending—they are spending smarter. And for businesses in both retail and hospitality, staying in tune with these evolving behaviors will be the key to making the most of this holiday season.
The pressure to spend during the holiday season is palpable, with many consumers feeling the strain of balancing festive purchases with rising costs. Sales, promotions, and discounts from retailers intensify this pressure, drawing shoppers in further as they try to capitalize on the best deals. While these sales offer temporary relief, they also create a cycle of overconsumption, often leading consumers to buy items they don't need. As inflation remains a concern, savvy shoppers are increasingly seeking value and practical gifts, carefully weighing every purchase. Retailers must understand this shifting dynamic to cater to more conscious consumers.
