Consumer Holiday Budgets Haven’t Increased But Their Buying Power Has

Even though 76% of consumers plan to spend the same or less on holiday shopping this year than last, their buying power is increasing exponentially.

Emerging low-cost marketplaces like Temu, as well as the established retailers that are ramping up to compete with them (think Amazon and Walmart), are a big part of this. In many cases, these ecommerce giants are bringing consumer products to shoppers at wholesale prices that have traditionally been reserved for the retailers that consumers buy from.

As a result, the dollar is stretching further, and shoppers are reevaluating the cost of the products they buy. As recently as a year ago, consumers who were newly confronted with these low prices were likely to ask why they were so cheap and question their quality. Now, the same shoppers are wondering why the same quality goods are so expensive elsewhere.

This shifting mindset is influencing how shoppers will make their holiday purchases this year. More than half of shoppers (57%) say, for instance, that they’ll be doing at least some of their holiday shopping online and 45% of shoppers consider discount stores a go-to source for holiday shopping,according to a recent Prosper Insights & Analytics survey.

Discounts and deals are also on their minds: 66% say sales or price discounts are the most important factor in their decision to shop with a retailer this season.

Here are some other holiday shopping insights that will help retailers tailor their approach to budget-conscious shoppers.

Holiday shoppers are starting early so they can shop longer.

By the time you’re reading this, a majority of shoppers have already started their holiday shopping. According to a recent Prosper Insights & Analytics survey, by November 85% of shoppers had begun their holiday shopping, with 45% of them having started in October or earlier.

By kicking off the holiday season early, shoppers can stretch out their purchases over time. It’s much easier, for instance, to make payments on gifts purchased over three months than it is just one. It’s also less stressful.

With more time on their side, consumers are also able to do price comparisons, ensuring they’re getting the best deals and prices. Equipped with this knowledge, they’re under less pressure to make quick impulse purchases during Black Friday and Cyber Monday. They know that there are other deals to be had beyond these dedicated sales.

But not all retailers are doing steep limited-time discounts. And though shoppers love the idea of a sale, they’ve become more attuned to making their buying decisions based on the cost of the product rather than how much it was discounted. This is an important distinction for retailers who are offering steep discounts but still not delivering pricing that’s competitive with retailers who offer everyday low-cost options year-round. According to a recent Prosper Insights & Analytics survey, 40% of shoppers say that everyday low prices are a top factor when considering the retailers they will purchase from during the holiday season.

Many shoppers will shop with new brands and retailers for the first–but not the last–time, thanks to their promotions.

Retailers spend months preparing to help consumers maximize their budgets with shopping events and discounts running throughout the extended holiday shopping season. This isn’t just to make last-minute sales; it’s because the holiday season is a strategic time for retailers to acquire new customers.

According to retail technology company Bluecore, converting visitors into first-time buyers around the holidays can be the first step to creating customers for life. The next step is converting those first-time shoppers into second-time shoppers.

In its 2024 retail benchmark report, Bluecore reveals that once shoppers make a second purchase, their overall purchase frequency increases by as much as 58%. So, while holiday promotions can result in reduced profit margins in the short term, retailers who are focused on long-term loyalty and repeat purchases can view holiday discounts as customer acquisition costs rather than low-profit sales.

“The holiday season is a critical time for retailers to attract first-time buyers, who they can begin getting to know now, so in the year to come they can tailor marketing to their unique preferences and behaviors,” said Sarah Cascone, VP of Marketing at Bluecore. “Retailers are not only focused on enticing shoppers with highly competitive prices and discounts but are getting them to come back multiple times once they’ve made their first purchase.”

This sentiment is reinforced by low-cost marketplaces like Temu. Research from YouGov estimates that as much as a quarter (24%) of Temu’s shoppers have purchased from the retailer more than one time.

Shoppers are more familiar with low-cost marketplaces than in years past.

As recently as two years ago, shoppers weren’t considering emerging low-cost marketplaces as part of their holiday shopping mix–mostly because they were too new and relatively unknown.

Since then, many have risen to the top of consumers’ awareness. For example, Temu has gained household name status since its launch in September 2022: 88% of Americans have heard of the online marketplace, according to YouGov.

Name recognition is just one factor that might contribute to these marketplaces’ share of holiday sales this year, however. According to a recent Prosper Insights & Analytics survey, other factors that will heavily influence shoppers’ holiday buying decisions this year include sales and discount codes (66%), quality of merchandise (58%), selection of merchandise (54%) and free shipping/shipping promotions (45%).

This is not to say that retailers’ only choice is to slash their prices to keep up with marketplaces that have fundamentally different business models than them.

“Retailers who are competing on price alone are in a tough position,” says Gretel Going, President of New York City communications agency Channel V Media. “I think this holiday season will reinforce the fact that retailers need to focus on building strong brands, introduce differentiated products and offer superior services and experiences.”

One thing that retailers can’t control is the state of the U.S. economy. According to a recent Prosper Insights & Analytics survey, more than half of consumers (53%) say ​​that this will affect their holiday spending plans. We’ll find out soon enough exactly how