From long lines of rowdy Black Friday shoppers to virtual shopping during COVID to today’s hybrid and tech-focused experiences, the holiday shopping season has changed dramatically in the past decade.  

In 2023, the trend toward more digital shopping is unrelenting. But brick and mortar isn’t dead yet. And it’s all happening in the backdrop of inflation and continuing concerns of a possible economic slowdown.  

Target and Walmart, two of the world’s top retailers, are predicting value-conscious consumers and a potential slowdown, perhaps a bellwether of future economic conditions.  

But despite the worries, the shopping season started with a bang. Consumers spent $109.3 billion online alone in November, a 7.3% jump compared to 2022. Overall, 15 million more people shopped this year between Thanksgiving and Cyber Monday. 

Worries remain, nonetheless. Shoppers are more cautious than in years past and demand for discretionary items continues to remain fickle. And bargain hunting is in! 

The Marketer’s View  

We asked Stu Atkins, marketing lecturer at Cal State Fullerton’s College of Business and Economics and owner of Atkins Marketing Solutions, to polish the crystal ball for this season.  

How does the current economic situation, including inflation, play in to the holiday shopping season? 

The combination of rising costs, increasing credit card debt, and rising interest rates is in the back of the consumer’s mind. The average shopper will be more selective by seeking maximum bang for their Christmas shopping buck this year. It is a mixed bag and we are hearing holiday shopping will return to pre-pandemic levels on the one hand or we will see a drop in spending on the other. 

There are so many unique variables in this 2023 season it is not easy to bring out an accurate crystal ball from Santa.  

Strong retail promotions may be the driving factor in minimizing consumer concerns about inflation and rising prices. If consumers must spend less, getting more for their money is key. 

What are some of the top trends? 

Promotional events will be key. If consumers have less savings with some having to start repaying student loans, promotions may drive many “in the moment” holiday purchases. 

Consumers may work on restocking non-gift holiday items such as clothes and decorations. Many backed off on these over the past two years. 

Some reports indicate gift card purchases will increase this year. Perhaps letting the card recipient chose their purchase saves the gift giver both time and money in the long run. 

I see consumers getting back in the stores in a post pandemic environment. Buying surrounded by holiday music and tinsel just seems more appealing than shopping in your bathrobe behind a computer or smartphone screen. 

Higher income households will spend more in 2023. They are more insulated from inflation and can absorb price increases with less impact. 

Walmart and Target are signaling a slow season. Is this a sign of an economic slowdown, or just a change in the way people shop? 

It may be both. Walmart just reported strong growth in comparable store sales plus a double-digit increase in e-commerce sales in the U.S. Company-wide revenue increased 5.2% to $160.8 billion. Yet Walmart is not hiring extra help for the holidays. The retail giant seems to be sticking with its status quo business model. 

As for Target, third quarter comparable sales declined 4.9%, which was not a surprise. To offset declines, Target will offer more than 10,000 new items for the holidays, with thousands of must-have gifts under $25, and thousands of exclusive-to-Target items across many categories. In short, Target is offering lower cost, value-oriented products to help drive holiday sales. Could that be a “last minute” risky change in their product mix? Only time will tell but it will be interesting to see how this plays out. 

The Economics of Holiday Season 2023 

For marketers and managers, the holiday season is all about bringing that year-end flush of income into retailers’ pockets.  

But for economists, consumer behavior during the winter holidays is an opportunity to see predictions for the economy bear fruit in real time.  

Mira Farka, co-director of the Woods Center for Economic Analysis and Forecasting and an economics professor, shared her thoughts.  

What does this holiday season reveal for the economy?  

My view is that the five-day period between Thanksgiving and Cyber Monday was the last hurrah for U.S. consumers before they turn more cautious.  

There are several reasons for this perspective. First, the amount of excess savings used to finance expenditures over the past few years is dwindling, though not yet exhausted. We estimate that as of the end of November, U.S. households have around $1.1 trillion in excess savings, a good war chest. But that is far below the $2.5 trillion they had at the end of 2021. 

The current excess savings should keep the economy going for a while, but it will likely run out by the end of 2024.  

Also, most of the excess savings is in the hands of the upper income levels, rather than low-income households, which have been relying more on credit card usage. Over the past two years, credit card debt has ballooned by 40%, far higher than the 20% increase in mortgages, the second highest category. This is at a time when credit card interest is the highest in 40 years, at 21.4%, adding further strain to consumer balance sheets.  

The resumption of student debt will also restrain consumption by young people. Since the start of September, real retail spending by those 25-34 years old has fallen by 1.5% at the same time that it has risen between 2.5% and 4.2% for all other age groups.  

As an economist, what are you looking for in this year’s season to divine the future for 2024 and beyond? 

Will the Thanksgiving spending rush hold up? My view is that it won’t, but U.S. consumers have surprised us in the past and may do so again.  

Also, how fast are consumers drawing down their excess savings?  

That holds the key to the economic outlook, and whether the economy will be able to soft land and skirt a recession (the data has been quite unreliable on this front, with lots of revisions that go back years).  

The third factor I am looking for are delinquency rates, particularly on auto loans and credit card debt. They have ticked up lately, to the highest levels since the end of the Great Recession. If that trend continues, it will be hard to see how the U.S. will avoid a recession in the second half of 2024.