Holidays are Coming

Christmas shopping this year will again provide a boost to the economy and public budgets, although it’s set to take a toll on the wallets of everyday citizens. Yet, the impact of holiday spending no longer dazzles as it did, say, five years ago. Several waves of economic setbacks have dampened our enthusiasm for festive shopping. While Christmas markets are still in the preparation phase, Santa Claus has already made his way into supermarket displays, almost side-by-side with Halloween decorations. "Holidays are coming," sing the leaders of supermarket chains, travel agencies, and Christmas decoration retailers. The retail sector is counting on customers having a bit more money for holiday shopping than last year. Why? Inflation has significantly slowed, while wages have continued to rise, as unions have insisted on compensating workers for the past years of rampant inflation.

A year ago, the situation teetered on the edge between extreme thrift and moderate splurging. By the end of November, European cities were already filled with Christmas markets. This year, markets are setting up slightly earlier, and attitudes have shifted a bit towards spending. The giant marketing figure of Santa Claus is already hobbling through the aisles, eyeing customers’ wallets. Like last year, Christmas markets and sales will last until mid-January 2025. It's clear that this year shoppers will increase their holiday spending slightly, although the rise will be more restrained than it was last year.

Reflecting on previous years is telling. The last Christmas shopping season in Europe without much fear or caution was November and December 2019. Then COVID-19 hit. The 2020 Christmas season was effectively frozen, and merchants recall it with as much enthusiasm as medieval traders remembered the black plague. November and December 2021 brought some cautious optimism but tinged with apprehension. As a stark example, after a brief taste of freedom, Italy closed its borders to non-EU tourists in December 2021, so Italian boutiques, supermarkets, restaurants, and hotels were left waiting in vain for crowds of customers.

Then came 2022, which wasn’t a good year for holiday shopping either. The full-scale Russian invasion of Ukraine triggered a price surge, with soaring costs for energy and food. This price wave compounded the economic shockwave from the monetary policies of distributing printed money by governments in the EU, the USA, the UK, and other countries to counter the economic fallout of the COVID-19 pandemic.

By autumn 2022, prices were eating into Europeans’ wallets at such a rapid rate that festive shopping was, frankly, out of the question. Thus, Europeans from Ireland and England to Ukraine and Poland largely decided to refrain from holiday indulgence. However, this turn toward austerity was short-lived; in November and December 2023, consumers attempted to make up for the previous few restrained years.

An even greater increase in holiday shopping is anticipated this year. But it seems likely that this will be the second and last year of rapid Christmas shopping recovery. GlobalData, a think tank, expects a revival but with new nuances: people will seek something different, and retailers will adapt their offerings in pursuit of revenue. In the US, the Holiday Outlook survey by PwC estimates that around 59% of American adults expect inflation to impact their holiday shopping, but spending in generally is forecast to grow by 7% over last year. Notably, this 7% increase is twice the inflation rate of the past 12 months, so Americans really are set to spend more on gifts. However, not everyone will participate equally. Interestingly, Discover Global Network research indicates that while 11% of respondents in Western Europe and the US are willing to spend more this season, the majority of Western Europeans (69%) and North Americans (68%) plan to spend roughly the same as last year. In Asia, however, a significant 45% of respondents intend to spend more.

According to the same study, younger generations plan to splurge the most, while frugality increases with age. When asked if they plan to spend more in 2024 than last year, here’s how each age group responded "Yes":

Generation Z (born 1995-2005): 38%

Millennials (Generation Y, born 1980-1994): 26%

Generation X (born 1965-1979): 17%

Baby Boomers (born 1945-1965): 11%

There’s more than just generational willingness to spend, as different age groups approach spending differently. Generation Z spends fairly evenly on various categories, though given their early career stage, personal incomes are still relatively modest. Millennials often prefer to purchase or receive experiences as gifts – like tours, education, or hobbies. Generation X likely has the largest spending budgets, as they are at their peak career and income levels. Baby Boomers? Many are now retired, exhibiting diverse spending habits. Those with substantial savings can afford more indulgence, as they not only have the funds but also the time to enjoy them.

It’s clear that it’s not just about the amount spent but the way it’s spent. Notably, GlobalData research highlights three key trends, reflecting recent fashionable habits:

This Christmas, value-for-money is paramount. Researchers note an interesting trend: established high-quality brands have risen in price more slowly over the past three years of high inflation, making them a strong temptation as a holiday splurge over mass-market options.

Products offering a sense of authenticity, new experiences, or uniqueness are more in demand. Artisan and local products fall into this category, so it’s a festive season for small local producers!

Subscription models, gift boxes, advent calendars, and online purchases of authentic and/or local products are becoming increasingly popular gift-giving methods.

Yes, we’re becoming more rational, but emotions and atmosphere still matter – and we’re willing to pay for them. Holiday spending fuels the economy, which is no bad thing, as long as it doesn’t lead to debt. Cases of Christmas loans being repaid by mid-year aren’t rare, which is indeed a step too far.