FRESH TAKES ON BIG IDEAS

US consumers aren’t feeling so great about the economy. Their confidence is still below prepandemic levels, and many are concerned about making ends meet. Even though inflation has cooled, the prices consumers pay at the store are higher than they’re used to, dampening their already-diminished reported optimism.

This holiday season, retailers might think that sales will be more subdued than in years past. But that’s not necessarily the case. Consumers have more in their bank accounts than they did prepandemic (especially middle- and higher-income consumers). That makes for a somewhat confounding snapshot of the US consumer, where their actions and their words don’t match. 

Here’s what it means for retailers ahead of holiday 2024: consumers are in a constant search for value—trading down in some categories so they can splurge on another product or service. It all comes down to whether consumers see something they really want at the right time, in the right place, and through the right channel.

In some ways, the holiday 2024 shopping season will resemble last year’s trends. Once again, the shopping season is longer (many consumers began shopping for holiday gifts in September) and characterized by a consumer search for value. AI-powered personalized promotions are going to be as important as ever. While consumers across age groups may find themselves in a “treat yourself” mood, this splurge mentality is most prevalent among Gen Zers and millennials: nearly 70 percent of Gen Zers and millennials say they plan to splurge on goods and services. Splurging will be particularly relevant in categories that are related to experiences. This could include products such as jewelry, which can be a means of self-expression, or a more traditional experience, such as staying at a great hotel. The through line is that consumers are looking for experiences that lessen the stress they feel about the world around them.  

“Nearly 70 percent of Gen Zers and millennials say they plan to splurge on goods and services.”

Despite the inherent sales momentum that the holiday shopping season brings, retailers will need to step up their game, since consumers are more willing than ever to switch retailers to get what they want. As such, retailers should keep value top of mind and use smart sales strategies. 

Consider loyalty programs, which can be a powerful tool for retailers. These programs can encourage consumers to make extra trips to the store, nab additional purchases, or increase their online cart value. But retailers must consider the strategy behind their loyalty offerings: Will their loyalty program actually increase a customer’s lifetime value? If so, a promotion or loyalty offering can be fruitful. But there are also consumers who would have purchased a given product with or without a promotion or loyalty offering. Developing a sophisticated approach to these programs alongside a clear understanding of consumer segments can help retailers realize their loyalty program’s full potential. 

One thing that should be omnipresent is an omnichannel strategy. Retailers must be prepared to meet consumer demand, with products available when and where the consumer wants them. This means making sure that consumers can find the items in store that they might have seen in a personalized promotion on their phone. For younger consumers in particular, social media can serve as a means of “window shopping,” while the physical store becomes a place to make a much-deliberated purchase. Speaking of stores, retailers must also demonstrate operational agility through year-end. Retailers should consider when foot traffic was highest in their stores last year and plan for additional labor and extended hours to meet those needs again this year. Click-and-collect options (also known as buy online, pick up in store, or BOPIS) are also becoming more popular across categories. 

As we enter the home stretch for holiday 2024, retail leaders can ask themselves: What are the things we offer that differentiate us from our competition? What are our customers telling us they want? And where do we need to show up for them stronger than ever before? The retailers that can coordinate across multiple channels and inspire consumers along the way will be those best positioned to top the “nice list” by year-end.

ABOUT THIS AUTHOR

Tamara Charm is a partner in McKinsey’s Boston office.