While consumers’ spending power is moderating, shoppers still expect to pay more than they did last holiday season. A shorter holiday season leading to compressed shipping timelines will create challenges for consumers eager to buy gifts for their families.
State of the consumer
Consumer spending was a key driver as the U.S. economy grew at a healthy 2.8% last quarter. The seasonally adjusted, year over year personal consumption expenditures decreased to 2.1% in September, according to the U.S Bureau of Economic Analysis.
Even though only 12,000 jobs were added in October, a slowdown from the average 194,000 jobs added over the prior 12 months, this is likely noise caused by hurricanes Helene and Milton and the strikes in the manufacturing sector, and not a larger shift. The unemployment rate remained unchanged at a healthy 4.1%, according to the U.S Bureau of Labor Statistics.
In addition, personal savings rates match what they were last November at 4.6%. While savings as a percentage of disposable income has risen .3% from last year at 4.8%, credit card delinquency rates continue to rise, now at 3.25%, but are still well below historical averages, according to the Federal Reserve.
And while wage growth has been declining considerably since its peak last year, the current 12-month moving average of weighted median hourly wage growth is at 5.0% and is higher than it had been during the 20 years before the pandemic.
Even as the trends of unemployment, job growth, delinquency rates and annual wage growth are in slight decline, their relative values compared to historical averages point to a moderating but still strong consumer position, leading to what will likely be robust consumer spending this holiday season.
Expected sales
During the holiday months of November and December, retail sales are forecasted to grow between 2.5% and 3.5% ($979.5 billion and $989 billion) over the prior year, according to the National Retail Federation.
Even though holiday spending is more discretionary compared to back-to-school spending, with 92% of consumers celebrating a winter holiday, it is an important season for consumers that is prioritized.
Short season
With only 27 days between Thanksgiving and Christmas this year, the holiday season is the shortest it has been since 2019, creating challenges for retailers and consumers. Notably, 45% of holiday shoppers planned to start browsing and buying items before November, up 6% from 2019. The primary stated reason for shopping early is to spread out their shopping budget, according to a National Retail Federation survey.
To address the early surge, consumer products companies and retailers created marketing campaigns that maximized the engagement of early shoppers. Additionally, early and longer discount timelines could help shoppers who need to plan and spread out their budget.
Shipping challenges
Given the shorter holiday season, this created added pressure to ship and deliver order volumes in condensed timelines. Retailers should encourage consumers to buy early and communicate the last shipping dates needed for products to arrive on time to ensure they capture the sale.
Earlier this year, many consumer products companies and retailers bolstered their inventory ahead of the potential port strike that occurred on October 1 but ended with a tentative agreement two days later. Concerns over a potential January port strike if a longer-term agreement is not made, and proposed tariffs next year are resulting in continued front-loading of inventory from overseas. While keeping carriers busy and spot rates elevated, this may help avoid supply chain delays experienced in previous years, and ensures products are available locally before the peak holiday season.
During the holiday season customers often have heightened expectations for fast and free delivery, creating risks and opportunities for customer satisfaction. Companies likely will see increased demand for last-mile delivery services, especially in urban areas, which constitutes a large percentage of total shipping costs.
Sellers that use technology including advanced route optimization, real-time tracking and predictive analytics will be able to manage high volumes efficiently. Companies that offer customers convenient store pickup options can help mitigate demand surges while reducing costs, and at the same time, extend customers’ budgets through reduced shipping fees.
Digital offerings
Interestingly, 55% of customers said they want to receive gift cards this holiday season according to a National Retail Federation survey. Sellers that offer digital gift cards can provide a desirable option that can be delivered immediately with essentially no delivery cost. These, along with other digital deliverables, such as subscription services, can create multiple future opportunities to engage with customers after the busy holiday season.
Additionally, gift cards purchased as a gift create engagement with two parties. Either the buyer or the receiver may be a first-time customer new to the brand. Companies should leverage existing data to categorize these customers and engage appropriately with both parties.
After the holidays, sellers should consider adjusting their marketing strategy to focus on consumers purchasing for themselves, rather than as a gift for someone else. In addition, companies should continue outreach to customers looking to spend their gift cards or exchange their gifts.
The takeaway
Consumer products companies should encourage early shopping, plan for shipping constraints across the supply chain and engage post-holiday shoppers to maximize sales. Businesses that provide early discounts, clear communication and methods for on-time delivery will help consumers spread out their budgets and avoid the stress of last-minute shopping.
This post is the first in our series on holiday season business insights for consumer products companies. Look for our next post and check out additional insights.
