This holiday season, shoppers are feeling the strain of inflation, with a third planning to spend less, and 27% considering taking on debt for their purchases, according to data from Afterpay. Retailers will need to be strategic with their holiday promotions, leveraging financing options like buy now, pay later (BNPL), personalized discounts, and perks like free shipping.

Here’s a deeper dive into consumers’ financial outlook ahead of the holidays and what that means for retailers.

1. Shoppers are feeling pressured, plan to take on debt

Over a third (34%) of US holiday shoppers say inflation will change how they shop this year, according to an August 2024 survey from Bankrate conducted by YouGov.

• A little over a quarter (28%) say they’re stressed about the cost of holiday shopping, while the same percentage (28%) say it will strain their budget.
• A third (33%) plan to spend less this holiday season.

Last year, consumer borrowing surged by $23.75 billion in November, more than doubling economists' predictions and pushing total outstanding credit balances above $5 trillion for the first time, according to the Fed's Consumer Credit report, as reported by CNN.

Something similar could happen this year, as 27% of consumers plan to take on some form of debt to do their holiday shopping.

• 54% of shoppers plan to use credit cards this holiday season, per Bankrate.
• 30% are considering buy now, pay later (BNPL) services, according to a July 2024 survey from Morning Consult and Afterpay.

The takeaway: With consumers feeling cash-strapped, deals and discounts will be key in securing share of this year’s holiday sales, which we forecast will reach $1.353 trillion in the US.

Over a quarter (28%) of US consumers say their shopping plans will be shaped by the price of each gift they buy, and 15% say they’ll be influenced by whether they think there are good holiday deals, according to a May 2024 survey from Medallia Market Research.

2. Generations are feeling the strain differently

Gen Z consumers are less likely to feel financial stress (reported by 30% of the cohort) compared with millennial parents (43%), and Gen X and boomer grandparents (41%), per Afterpay.

However, Gen Zers are the second-most likely to consider BNPL essential for the holiday season (41%), right behind millennial parents (42%).

• Gen Z consumers and millennial consumers will make up 64.9% of total BNPL users in the US this year, with 24.6 million and 31.6 million users, respectively, per our forecast.
• US BNPL payment value will rise 20.8% to reach $94.29 billion this year.

The takeaway: Retailers should personalize discounts, using age or payment preferences to encourage specific demographics to make a purchase.

3. Free shipping is a differentiator

Nearly half of all shoppers say they will try to buy only from brands with free shipping this holiday season, per Afterpay.

• However, 11% of US consumers say they plan to boycott brands that don’t offer free shipping or returns, per Invoice Home.
• Extra costs that are too high (e.g., shipping, tax, fees) is the No. 1 reason that US adults abandoned their online shopping cart during checkout, according to a February 2024 survey from Baymard.

The takeaway: While free shipping can be costly for retailers (Salesforce estimates retailers and brands will incur an extra $197 billion in middle- and last-mile delivery expenses this holiday season), it’s also an effective way for ecommerce retailers to differentiate themselves in a highly competitive environment.

• Free shipping is one of the top three reasons consumers choose to make a purchase from a particular brand or retailer, per Salesforce.
• In addition, more than half say they’re likely to purchase online rather than in-store if delivery is free.

This was originally featured in the EMARKETER Daily newsletter. For more marketing insights, statistics, and trends, subscribe here.