Holiday Retail Reality: Data Paints A Picture Of A Cautious Consumer

Although consumers are feeling better about their economic prospects for spending, retailers might be sleeping on some data that throws caution on the optimistic projections set for the holiday spending season. New PYMNTS data analytics do not paint a picture of a consumer who is ready to fuel a complete turnaround for the uncertain 2020 holiday season. In fact, the data show a cautious population living paycheck to paycheck, ready to spend conservatively during the holidays and heading toward payment mechanisms that reflect that attitude.

This data is almost directly opposite many holiday predictions that show a rise in consumer confidence, which is expected to translate into a drop in brick-and-mortar spend corrected by a boost in online spend that will lead to an overall increase from 2019. Many of these predictions are based on consumer psychology rather than actual shopping intent. They predict that a frustrated consumer will want to put on a pretty bow on a bad year with increased holiday spending – and that this increase will be counterbalanced by spending cuts in travel and dining. When it comes down to actual spending intent, however, the picture stands in contrast to an overly optimistic outlook.

The first factor in this more conservative outlook is the American consumer’s employment and wage status. Among the 2,857 consumers surveyed for the PYMNTS holiday spending scenario report, 63.3 percent said they were living paycheck to paycheck. Of that group, 26 percent said they were having trouble paying bills. The remaining 37.3 percent said they were living paycheck to paycheck, but were comfortably paying bills. Regardless of those differences, living paycheck to paycheck doesn’t leave room for extra holiday spending.

The data is further validated by another PYMNTS study, which integrates unemployment figures. As of this writing, the U.S. unemployment rate was 7.9 percent, which is double the pre-pandemic levels. This study found that 17 percent of unemployed consumers have no money in savings whatsoever, whereas another 30 percent have less than $2,500 stashed away in case of emergency. Outside of that cohort, many consumers’ concerns about the COVID-19 pandemic are compounded by the fact that they lack the financial resources to keep paying their bills in case of emergency.

The survey also showed that consumers are feeling the need to curb their spending in hopes of keeping solvent until a year from now, when they believe the pandemic will end. Unemployed consumers are at even greater risk of running out of funds. Again, not a positive trend for holiday spending.

The picture doesn’t improve much when consumers are asked straight up about their intention to spend this holiday season. The PYMNTS scenario survey shows that only 18.7 percent of consumers will spend more than they did in 2019. Consumers who said they would spend “about the same” accounted for 47.3 percent of responses. The survey showed that 17.8 percent would spend somewhat less, and 9.4 percent would spend much less this year. In a surprising twist, 6.8 percent said they wouldn’t be shopping during the holiday season at all.

The low percentage of enthusiasm for the season (only 7.1 percent said they would spend “much more”) begs the issue of a possible stimulus. It’s hard to know if a December-timed check would be spent on holiday shopping, but it’s clear that the previous stimulus was used for two things: savings and paying down debt. According to PYMNTS’ analysis of University of Chicago data, about 42 percent of consumers saved all or part of their stimulus payment. Forty percent used the payment for debt such as mortgages, auto loans or student loans. Only about 15 percent said they spent the entire stimulus check. This relatively low rate of spending for a one-time transfer is higher for consumers facing liquidity constraints, are unemployed, live in larger households or are less educated.

In terms of overall payments, at the top were debit cards (35.7 percent) and credit cards backed by money to pay for the charges (31.8 percent).

“Consumer demand right now is for responsible credit options,” said PayPal’s Executive VP of Global Sales Peggy Alford. “For them, buy now pay later [is] more than just credit – it’s flexibility of payment. In these economically uncertain times, the desire for many people — especially our young folks — is to not go into debt or risk it, but they do need spending flexibility.”

After that, the darker side of holiday 2020 sets in. A little more than 18 percent of those surveyed said they would need to access savings to pay for the holiday, and 10.9 percent would pay using a credit card without being able to cover the charges.

Compared to the PYMNTS study that shows alternative payments, the holiday shopping scenario shows that consumers may lack awareness of some of the new digital payment options that would make shopping easier. The additional PYMNTS study, which was conducted outside of the holiday shopping context, shows that being able to shop and pay digitally is a must for many consumers. The convenience of using digital payments such as QR codes resonates so well that one-third of the consumers who prefer them would not even consider making purchases in a physical store without them.

PYMNTS also found that 48 percent of consumers who prefer point-of-sale (POS) credit would not consider making purchases at merchants that did not offer that option at checkout. Accepting consumers’ preferred digital payment options is unequivocally important to maximizing merchant conversion rates and boosting businesses’ bottom lines.

Speaking of bottom lines, retailers need to watch theirs, and should calibrate their inventory and revenue projections based on data, not consumer psychology. Ask a consumer how he or she feels about their current economic situation, and the answer is usually an aggregation of emotion and perception. Ask a consumer how he or she will spend their money, and the answer becomes simple, clear and rooted in data.