U.S. consumers shopped online in record numbers this past holiday season, spending over $222 billion according to new data. This represents a 4.9% increase year-over-year. The massive rise was fueled by heavy discounts across categories along with growing usage of buy now, pay later financing options.
Deep Discounts Drive Online Shopping Surge
Retailers offered some of the steepest discounts in years, with average discounts reaching record levels over key holiday shopping days like Black Friday and Cyber Monday according to Adobe Analytics.
“The big story this year was discounts,” said Vivek Pandya, lead analyst at Adobe. “Many retailers entered the holidays with elevated inventory levels and had to drive demand through heavy discounting during peak shopping periods.”
Average discounts hit record highs of up to 32% off on Cyber Monday, compared to 27% a year ago. Those deals helped spur a record $11.3 billion in total Cyber Monday spending, as consumers took advantage of the savings.
Similar trends played out during other shopping holidays in November and December, greatly benefiting E-commerce retailers. Shoppers shifted more of their shopping online to capitalize on the discounts while also avoiding crowds and shipping delays.
“Retailers who leveraged discounting strategies to attract consumers witnessed stronger growth as a result,” said Pandya.
Buy Now, Pay Later Options See Big Growth
Alongside heavy discounts, usage of buy now, pay later platforms like Affirm and Afterpay reached new highs. Use of these services, allowing shoppers to split purchases across installment payments, rose 81% year-over-year according to Adobe.
BNPL made up $20 out of every $100 spent online during this holiday period. Signifyd, which provides fraud protection services to retailers, reported that BNPL made up 3.1% of total transaction value from November – December, doubling from 1.6% the prior year.
Affirm alone saw the total dollar amount of purchases through its platform rise nearly 80%, including big gains during Cyber Week and December according to company data.
“The growth has been incredible,” Affirm CEO Max Levchin told CNBC. “Deal days like Cyber Monday attracted a ton of volume, and we’re now seeing BNPL become more mainstream.”
Top product categories for BNPL services included electronics, apparel, home goods, and beauty products. Use is expected to keep rising next holiday as retailers expand payment option offerings.
Mobile Shopping Jumps Nearly 15%
Alongside high demand through desktops and laptops, a sizable chunk of this season’s online holiday spending came from shoppers using mobile devices.
|Mobile Order Share
|Overall Holiday Season
“Mobile capabilities, important to consumers even before the pandemic, became crucial to merchants over the holidays,” said Rob Garf, VP of Strategy at Salesforce. “Shoppers felt empowered to purchase on mobile this season.”
The easier checkout and payment options through mobile apps continue to drive their rising adoption and higher spending through these channels.
December Caps Strong Overall Season
Coming into the peak holiday season there were questions around consumer demand in light of high inflation and recession concerns. Those fears were calmed as shoppers kept spending, taking advantage of discounts to purchase gifts while also treating themselves.
December sales helped cap a robust holiday season overall, rising 4.9% year-over-year according to Mastercard SpendingPulse data tracking overall retail spending including in-store and online.
Higher prices across categories like apparel and electronics were offset by increased promotions. Shoppers also sustained demand for experiential gifts in areas like travel and restaurants as pandemic-related concerns eased.
“The consumer was incredibly resilient this holiday season, fueling growth both on-line and in-store,” noted Michelle Meyer, U.S. economist at the Mastercard Economics Institute. “Promotions also played a key role, enabling shoppers to give generously at relatively accessible price points.”
Multiple forecasts had predicted holiday sales rising anywhere from 2% to 8%, but both online and overall brick-and-mortar sales comfortably exceeded most expectations.
“We saw the momentum build throughout the season right on schedule with demand spikes during key days, impressive growth for retail businesses both large and small,” said Vishwa Chandra, lead retail analyst at Accenture. “It sets up a strong foundation heading into 2024.”
Outlook: Pressure Eases Heading into New Year
Entering 2023 many analysts predicted retailers would face immense margin pressure from rampant inventory gluts, higher operating costs, and strained consumer demand resulting from rising prices and interest rates.
But updated projections point to substantially healthier conditions after inventory levels normalized faster than expected while consumers feel more financially stable. Consumer sentiment measures also rebounded in late 2022, recovering around 70% of the decline from record lows seen over summer according to Mastercard.
This paves the way for improved growth and flexibility for retailers adapting strategies in 2024. Expect heavy discounting still during sales holidays, but likely less desperation around offloading excess stock. Retailers should also expand BNPL payment options to capture more millennials and Gen Z shoppers.
Mobile and online purchasing penetration reached new levels but still have much room left to run. Continued retail innovation around Buy Online Pickup In Store (BOPIS), quick delivery, and seamless checkout experiences will help that digital transition.
With holiday sales clearing almost all expectations, retailers are breathing a bit easier entering the new year. But they also can’t get complacent and must keep adapting to expectations around value, convenience, and personalized shopping experiences in our increasingly digital era.
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