How student loans and rising consumer debt are set to impact retail holiday spending in Q4
As store shelves fill with Fall favorites like spooky-themed home goods, bulk candy bags and all things pumpkin spice, it’s hard to ignore the beginning of the US winter holiday shopping season – and the uptick in American spending that typically goes with it. TWith consumers spending generously on entertainment items, home décor and gifts to celebrate several holidays throughout the season, the frenzy from late September through the new year is a well-established critical time for retailers, who count on the “Golden Quarter” for a large chunk of their annual revenue.
But with the change of seasons in the US this year, consumers whose student loan payments and interest were deferred since March 2020 due to pandemic relief policies have now seen those pauses lifted—with interest accruals resuming as of September 1 and the first student loan repayments due October 1. Plus, many of these same shoppers (and their parents) have doubled down on consumer debt, contributing to record highs in credit card debt and car loans, particularly for younger consumers.
If retailers and brands hope to see a strong Q4 this year, they simply can’t ignore the return of loan repayments and the potential impact on consumer spending this holiday period, as the relationship between student loan repayments and consumer habits is deeply intertwined.
The effect of student loan repayments on consumer holiday spending
Looking back over the past 10 years and coming out of the Great Recession, substantial debt associated with student loans has typically resulted in a more tempered attitude toward consumer spending among borrowers. According to data from the New York Fed Consumer Credit Panel (CCP), student loan borrowers tend to spend less overall. It’s not difficult to understand that for such consumers a significant portion of monthly income is dedicated to loan repayments, which leaves less discretionary income for holiday shopping.
Unfortunately, their parents are also likely to take on additional debt associated with student college expenses with separate loan programs such as the Parent PLUS loan program further contributing to household debt and pressure on consumer discretionary spending. Student loan repayments will affect both current and future generations and even older consumers might find their discretionary spending reduced for the 2023 U.S. holiday shopping season.
Rising household and credit card debt continue to shrink discretionary spending
It’s not just student loans that will have American consumers strapped this holiday season. As with student loan repayments due, high levels of debt and high credit card interest rates (assessed interest was 22.16% in May 2023) make US consumers more cautious when it comes to spending on non-essential items and gifting. Consumers will continue to prioritize necessary expenses (the needs) over discretionary purchases (the wants).
While general personal debt looks to be decreasing from 2019 (not including mortgages), recent data shows credit card debt and auto loans pushing US household debt records in Q2 2023. Similarly, Transunion reported that the average credit card debt rose from $5,010 in Q1 2022 to $5,733 in Q1 2023.
The impact of household debt on US consumer holiday spending means retailers must develop strategies for American households and primary holiday goods purchases dealing with wallets under pressure from loan and household debt.
Taking cues from 2022 U.S. and even a few UK and US holiday spending and predictions for the 2023 holiday season (Deloitte, Kantar, Insider Intelligence), retailers can expect moderate increases (between 3.5% and 4.6% per Deloitte’s Sept update) in holiday spending with consumers continuing to focus on value and deals while seeking out holiday gifting or entertainment goods that are fun, unique and functional. Consumers have shown that they are willing to spend dollars when the price is perceived as a good value, discounts are available, and the purchase is during popular sales events such as Amazon’s October Prime Day, Black Friday and Cyber Monday to tackle their holiday shopping lists and stretch their dollars.
Implications for US holiday shopping and retailers
Retailers must continue to adapt their marketing strategies and product assortments to effectively capture consumers’ attention and dollars during the marathon U.S. holiday shopping season. Depending on a retailer’s consumer targets and their shopping behavior, the implications of student loan repayments and overall U.S. household debt levels on holiday shopping can be significant. Here are a few key strategies they can employ:
- Rethinking marketing and promotions – Retailers should focus on value-driven marketing campaigns and special assortments, highlighting deals or discounts that appeal to cost-conscious shoppers with bundles or pack offerings tailored for holiday gifting or gathering. By offering unique festive assortments, competitive prices, unique promotions and incentives, retailers can encourage spending while considering consumers’ financial concerns and constraints throughout the holiday shopping season.
- Embrace ecommerce and omnichannel experiences – Retailers (and their brands) need to incentivize browsing consumers to become purchasing consumers. With more consumers turning to online shopping, retailers must prioritize their ecommerce capabilities and consider how to drive ecommerce and brick-and-mortar together. User-friendly websites, seamless online purchasing experiences, and fast and reliable shipping, delivery, or pick-up options, can help retailers cater to the increasing demand for convenient, contactless shopping, especially among Millennial and Gen Z consumers.
- Enhance customer service and data analytics for personalization – Meeting product quality, delivery, and customer service expectations can set retailers apart from their competitors in a competitive retail landscape during the holiday season. Personalization and investing in seasonal-specific training for all employees can help retailers deliver great service and leverage customer data to provide personalized recommendations to drive loyalty and repeat purchases.
By understanding the challenges faced by consumers, retailers can adapt their strategies to effectively capture their attention and dollars. Emphasizing value-driven marketing, embracing ecommerce and omnichannel experiences, and enhancing customer service and personalization are key steps that retailers can take to navigate the current economic landscape and stand out during the US holiday shopping season.
To get the most out of this holiday season, download our Holiday Campaign Calendar—filled with planning advice and reminders from Halloween to Boxing Day and everywhere in between.