U.S. Holiday Shopping Season Kicks Off with Strong Online Spending Despite Economic Uncertainties

U.S. consumers were lured by significant discounts across various categories, including beauty products, toys, and electronics, over the Thanksgiving weekend. This resulted in online spending of approximately $38 billion, indicating a robust start to the holiday shopping season despite prevailing economic uncertainties.

Consumer spending online saw a notable increase of 7.8% during Cyber Week, spanning the five days from Thanksgiving through Cyber Monday, as reported by Adobe Analytics. This surpassed the initial projections of a 5.4% rise.

Leading up to the pivotal shopping season, industry predictors such as Deloitte, as well as major retailers like Walmart (WMT.N) and Macy's (M.N), cautioned about restrained consumer spending influenced by persistent inflation and tight budgets. However, the presence of blockbuster deals proved enticing for bargain-hunters.

“I don’t think we’re seeing great sales numbers, but I think expectations were sufficiently beaten down that this was sort of expected, if not a little bit better," said AllianceBernstein Chief Investment Officer Jim Tierney.

The National Retail Federation (NRF) reported on Tuesday that over 200 million shoppers engaged in both in-store and online purchases over the Thanksgiving weekend. This marked a nearly 2% growth from the previous year and exceeded the NRF's initial estimates of 182 million.

"It seems like individuals are becoming a little more price conscious this season. It's probably worth discounting a bit more, from retailers’ perspectives, and seeing if the consumer will respond accordingly," said Jeffrey Roach, chief economist at LPL Financial.

"It seems like retailers are expecting consumers to continue to shop for Christmas presents," said Brian Mulberry, client portfolio manager at Zacks Investment Management which owns stakes in Amazon and Walmart. "It will be an interesting proxy to gauge if those discounts deepen significantly in the next week or two to try and entice any type of consumer spending."

Despite approximately half of Americans' holiday shopping still remaining, the NRF maintained its prediction of 3%-4% growth in retail sales for the entire November-December holiday season. The organization emphasized that consumers would persist in seeking significant promotions and bargains.

According to NRF data, consumers spent an average of $321.41 on holiday-related purchases, encompassing items like toys, electronics, and gift cards during the Thanksgiving weekend. This is a slight decrease from the $325.44 spent on average last year.

"I think we are seeing a bet from consumers that there will still be deals leading into the holidays...there is optimism for the holidays, it's just a different spending pattern than we're used to," said Dave Peacock, CEO of Advantage Solutions, a consulting firm that works with retailers, including Walmart.

"There's going to be a shot, a consumer that's going to chase value to the end of the shopping season," said Tanger CEO Stephen Yalof. With Christmas on a Monday this year, he predicted, shopper traffic levels "throughout the selling season" would be stronger than in 2022.

With discounts reaching as high as 31% on electronics and 27% on toys, coupled with the convenience of last-minute shopping from the comfort of homes, online sales have gained an advantage over in-store shopping. The Thanksgiving weekend witnessed a 3.1% increase in online shoppers, totaling 134.2 million, compensating for a slight decline in the number of customers visiting brick-and-mortar stores. In-store shoppers numbered about 121.4 million during this period, down from 122.7 million in 2022, as reported by the retail body.

“What I’m not hearing about is the one blow-out gift, or the five blow-out gifts, like we’ve had in the past," Tierney said. "To a degree, that benefits Amazon given that we’re not seeing shopping just on one big day anymore," he said.

"When there is not that one hot thing, it works in Amazon’s favor that what consumers want is sufficiently broad and when they’re willing to buy it is broader than just one weekend.”

As per Salesforce, which obtains its benchmarks for online traffic and spending from data processed through its Commerce Cloud e-commerce service, U.S. shoppers expended approximately $70.8 billion online over the Thanksgiving weekend this year. This reflects a 4.1% increase compared to 2022.

'Buy Now, Pay Later' Drives Big Spending Online

In an effort to extend their Christmas budgets, shoppers are increasingly relying on Buy Now, Pay Later (BNPL) services such as Klarna or Affirm to avoid additional fees and interest associated with credit card payments.

A record-breaking $940 million worth of purchases were made through BNPL on Cyber Monday, witnessing a substantial 42.5% surge from the previous year and surpassing Adobe's earlier projection of an 18.8% increase. Adobe monitors transactions through its Experience Cloud service, which powers e-commerce platforms for retailers.

Payments company Block (SQ.N) observed a 19% spike in BNPL transactions through Afterpay over the weekend, emphasizing that online shopping cart sizes were 3.9 times larger than in-person shopping.

Klarna also reported a 29% increase in orders placed by U.S. shoppers on Black Friday.