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February 27, 2024

Online Holiday Spending Hits New Record of $222 Billion Despite Economic Uncertainty

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Jan 4, 2024

Buy Now, Pay Later and Deep Discounts Drive Increase

The 2023 holiday shopping season exceeded expectations and broke records for online spending despite high inflation and fears of a potential recession, according to data released Thursday by Adobe Analytics.

Consumers spent a total of $222 billion online between November 1 and December 31 last year, up 5.2 percent compared to 2021. The earlier-than-usual launch of holiday discounts and savings in October helped drive momentum that lasted through December. Retailers offered deep discounts to attract budget-conscious shoppers, with an average of 29 percent off items such as toys, computers and sports equipment.

“Many retailers offered consumers deep discounts across categories like electronics, sporting goods, toys, and health and beauty,” said Patrick Brown, vice president of growth marketing and insights at Adobe. “While discounts were strong across the board, we saw smaller retailers especially drop prices to stay competitive with record spending on big retailer sites like Amazon.”

BNPL Fuels Growth

The growth was also powered by the increasing popularity of “buy now, pay later” (BNPL) options, which allow online shoppers to split payments on purchases into multiple installments. BNPL spending saw a 47 percent jump compared to last holiday season. Top products financed through BNPL were furniture, electronics, home improvement items, fashion and beauty.

“This holiday season, consumers widely embraced promotions and relied on flexible payment options to fund purchases and spread out their budgets in a time of economic uncertainty,” said Taylor Schreiner, senior director at Adobe Digital Insights.

Online Overtakes In-Store for First Time

For the first time, a majority of holiday purchases happened online instead of in physical stores. Online spending made up 55.3% of total holiday sales, while in-store and other offline spending accounted for the remaining 44.7%, according to Mastercard SpendingPulse estimates.

“E-commerce sales hit a new record this year with more people doing their holiday shopping online,” said Steve Sadove, senior advisor for Mastercard. “While online sales continue to grow, stores still play a vital role during the holidays with shoppers drawn to the experience and immediate gratification of buying gifts.”

Holiday Sales 2021 Holiday Sales 2022
Online: $238 billion (53.6%) Online: $259 billion (55.3%)
In-store: $206 billion (46.4%) In-store: $209 billion (44.7%)

Consumers spent over $468 billion in total during the holiday season according to Mastercard. Online ordering with in-store and curbside pickup also gained traction this year.

“Although online shopping remains consumers’ preferred choice due to its unparalleled level of convenience, brick-and-mortar is still very much in the game,” said senior industry advisor Deborah Weinswig. “Retailers must continue enhancing omnichannel capabilities while simultaneously creating immersive, interactive in-store experiences.”

December Sees Spike in Traffic and Sales

December provided a last-minute boost to retailers. Shoppers drove a significant uptick in both traffic and sales during the final weeks before Christmas.

Retail website traffic jumped over 12 percent from November 28 to December 11 versus the first three weeks of November. Average order value also grew nearly 5 percent to $170.33 as shoppers purchased higher priced gifting items like luxury goods, electronics and home goods.

Apparel and accessories brands in particular benefited from the surge in December demand, with a 19 percent increase in sales compared to November. Beauty and personal care sales also jumped 7 percent month-over-month thanks to digital gift card redemptions and last-minute gifting purchases.

“With Christmas Eve 2022 falling on a Saturday, the final Saturday shopping weekend capped off a robust holiday season for online brands and retailers,” said Rob Garf, vice president of retail insights at Salesforce.

Forecast for 2024 Remains Strong But Cautious

Despite beating expectations for online holiday sales, forecasts for next year’s shopping season remain cautious as consumers continue to grapple with stubborn inflation and rising interest rates.

“High prices for food, rent, gasoline and other household expenses have forced many consumers to rely on discounts and credit to purchase holiday gifts this season,” said Katherine Cullen, senior economist at the National Retail Federation. “Uncertainty over future economic conditions will likely cause households to remain selective with spending.”

Most economists expect online spending growth to slow in 2024, but still remain relatively healthy between 3-5 percent. Experts say higher income households will likely continue spending on the latest gadgets, electronics and experiences. However, middle and lower income shoppers may pull back if inflation is not tamed or the economy enters a recession.

Retailers will need to find the right balance between promotions and profits while offering flexible financing options as economic conditions evolve. Ongoing investments in digital capabilities and personalized customer experiences will also separate the winners from the losers.

“Brands adapting to fast-changing consumer behaviors and economic shifts were this holiday season’s success stories,” said Mike Linton, chief marketing officer at RossetaCommerce. “Retail is ever-changing, and the companies that will thrive are those that put customers at the center of everything they do.”

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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