Cristina Caba of Flanders, N.Y., had already decided to cut holiday spending this year, but she drew a line, sort of, when it came to buying gifts. For Thanksgiving, she invited fewer guests than in the past to join her, her husband and their two children for dinner, citing higher prices as the reason, and she plans to continue for Christmas.
But it’s a different story when it comes to presents for her children.
“They don’t understand what’s going on,” said Caba, who works as a house cleaner, explaining that she planned to buy them presents but also admitting that she plans to spend less. “I told them this Christmas will be more normal, especially to my oldest son.”
Like Caba, more consumers than ever before are spending more on holiday items, according to the National Retail Federation (NRF), and they increasingly prefer the convenience of online shopping.
From Thanksgiving to Cyber Monday on Nov. 27, the number of consumers in the U.S. shopping at bricks-and-mortar stores totaled 121.4 million, down from 122.7 million in 2022, according to the NRF. In the same period, 134.2 million shopped online, up from 130.2 million last year.
For Cyber Monday, spending and using buy-now-pay-later (BNPL) plans increased. Consumers spent an estimated $12.4 billion, 9.6 percent more on Cyber Monday than last year, according to Adobe Analytics, and hit an all-time high on BPNL loans, spending $940 million online. But from Nov.1 to 27, the use of BNPL drove a total of $8.3 billion in sales, 17 percent higher than 2022 , making November the biggest month on record for this payment method.
This holiday season, retailers with a strong online presence have profited more, a trend that is expected to continue. Despite signs of consumer belt-tightening in recent months, the holiday spirit seems to motivate consumers to make an exception – one that comes with its own price tag. Consumers willing to take on more debt to afford their holiday shopping might have to tighten their spending habits even more in the next months.
“Brick-and-mortar retailers are going to continue to be the losers now just because things are migrating over to online sales,” said Scott Wren, senior global market strategist at Wells Fargo. “If you don’t have a good online operation, you’re going to suffer. And if your products are not the ones that are easily bought online, those could very well underperform as well.”
Consumers like Margarita Altamirano, a private chef who lives in Southampton, N.Y. the convenience of buying gifts online on Cyber Monday beats standing in long checkout lines, crowds of shoppers and cold weather to get a good deal on Black Friday. She bought clothing for her husband, son and two daughters from stores like Boston Proper.
“That’s the only day I buy,” Altamirano said. “It’s convenient because you can be at home and not in the cold making the lines, and I realized there are more discounts.”
According to the NRF, the most popular purchases this holiday season were clothing, accessories, toys, gift cards, books and personal care.
The increase in online sales affects brick-and-mortar businesses regardless of their size, but larger retailers can cope better than small businesses. Among apparel retailers, Express Inc. reported a 16 percent decrease in store sales in its third-quarter earnings report compared to 2022, but it was offset by a 10 percent increase in online sales.
For small-business owners like Oscar Perez, who owns Tio Pelon’s Salsita in San Antonio, Texas, Thanksgiving week was “a little bit slower than usual,” especially for his most popular item of the season: gift baskets. Perez’s business makes jars of salsas, which can be used as toppings for a variety of recipes. They are available online and at retail stores, including H-E-B, a San Antonio-based supermarket chain with more than 420 stores in Texas and Mexico.
Perez said companies usually order the baskets as gifts for their suppliers, but sales in November were lower than usual.
Even during Small Business Saturday – the day after Black Friday, intended to encourage purchases from smaller vendors – consumer spending totaled $17 billion this year, down from $17.9 billion in 2022, according to two surveys by American Express.
A drop in holiday sales can significantly hurt small businesses. About 73 percent of them “attribute more than one quarter of their annual sales to the holiday period,” according to a survey by Constant Contact, a digital marketing company.
Analysts warn that on the consumer side, the increasing use of financing during the holidays can weigh on consumers' finances, adding stress on their pocketbooks in the coming months. Credit card balances surpassing $1 trillion for the first time and the rise in delinquencies are signs that consumers’ finances are already tapped out.
“It’s going to hurt spending more,” Wren said.
BNPL plans are installment loans offered both in-store and online. Some of these loans charge no interest or fees, depending on the provider, which makes them appealing to the consumers. But some longer-term BNPL plans do.
Consumers may end up accumulating debt from BNPLs that will be hard to pay off as they scour multiple stores during the holidays, the Federal Reserve Bank of New York warned in a September report. About 43 percent of people who use BNPL are individuals with credit scores lower than 620.
“It’s easy for people to end up with more than one buy and suddenly have a lot of payments in a very short period of time,” said Adam Rust, director of financial services at Consumer Federation of America.
Rosemary McCarthy, a leasing consultant at Sungate Apartments in Patchogue, N.Y., knows the burden of accumulated debt, having relied on her credit cards when she was temporarily out of work during the pandemic. She now plans to avoid using them for her Christmas shopping.
“If you just make the minimum payment, it does take forever,” McCarthy said. “I owe about $15,000 on credit cards –, not a tremendous amount compared to other people.”
The Federal Reserve’s 11 interest rate hikes since March 2022 has made it harder to reduce balances in credit cards.
Despite polls showing pessimism amongst Americans, the overall economy offers some hope for consumers and small businesses alike. The U.S. added 199,000 jobs in November and unemployment dropped to 3.7 percent, according to the latest jobs report, released on Friday, which may prevent the Federal Reserve from hiking interest rates at its meeting this week. And predictions of a recession have decreased considerably.
With inflation also coming down, consumers may be months away from economic relief. But the popularity of online shopping is not expected to stop growing.
“If I make my purchases online, I end up paying about 20 more for shipping and fees,” Caba said, explaining why she prefers to order groceries online. “But then I think about what it takes to go out with the children when it rains. I even prefer to buy clothing online than go to the store.”