“People are planning to spend roughly the same dollar amount as they have in the past—but they’re going to shift their spending toward needed goods as opposed to discretionary goods,” says McKinsey Senior Partner Emily Reasor. And, she adds, US consumers have already started shopping for the winter holidays. These are among the insights from the latest ConsumerWise survey, which was in the field from July 25 to August 3. The survey asked 4,000-plus consumers across the country about their plans for the 2025 holiday shopping season.
Highlights from the survey—as well as implications for retailers and consumer-goods companies—were the topic of discussion in this episode of the McKinsey on Consumer & Retail podcast, hosted by Monica Toriello. The following is an edited transcript of the conversation. (Subscribe to the podcast.)
Monica Toriello: “I’ll be spending mostly on gift cards because I really can’t afford shipping costs for anything else.” That quote is from a female baby boomer who was one of the more than 4,000 US consumers surveyed as part of our latest ConsumerWise research. Her sentiment was echoed by many other consumers. In fact, gift cards are the top planned purchase for US consumers this holiday season.
Yes, we know it’s only September, but we are dedicating this episode to the 2025 holiday shopping season because it is starting early again this year. To talk about holiday shopping insights from our ConsumerWise survey, we’re pleased to welcome McKinsey Senior Partner Emily Reasor to the podcast. Emily is based in our Denver office; she coleads our work in specialty retail globally. Her areas of expertise include breakout growth, analytics, pricing, and margin management. The findings and insights she’ll share today will be tremendously helpful to both retailers and CPG [consumer packaged goods] companies as they plan for the very important 2025 holiday season.
Thanks for joining us today, Emily. We’ll start with a very easy question: Have you started your holiday shopping?
Emily Reasor: Of course. Like many, I have pulled my shopping forward. As a mom and a wife, yes, I’ve already started thinking about and planning for the holiday season ahead.
Monica Toriello: So you are part of that growing cohort of people who are shopping early. But before we get into when consumers plan to shop, let’s talk about how they’re feeling. Describe what you’re seeing in consumer sentiment as we enter the 2025 holiday season.
Emily Reasor: Unfortunately, it’s another year in which the consumer is telling us she is very uncertain. If we look at how sentiment has trended, it’s come down from the 2024 peak. Net sentiment is 35 percent lower than it was in 2024. Interestingly, though, we’re not seeing a huge increase in negative consumer sentiment, so shoppers are somewhat confused and unsure what to do. The word I’ve heard people use is “timid.” Shoppers are timid this year, which is part of why we see people planning ahead more and changing their spending patterns.
Monica Toriello: What’s affecting consumer sentiment most? Is it tariffs? Is it inflation? Is it geopolitics? What specific drivers are making consumers feel uncertain or timid?
Emily Reasor: Of course, all those things matter. There is a long list of what’s weighing on the consumer. But as we’ve dug into the data, the single largest driver is inflation, pricing, and overall affordability. Interestingly, the impact of tariffs on consumer sentiment has come down slightly since earlier in the year. I think some of that is because consumers are now more accustomed to hearing news about tariffs, as opposed to it being so shocking earlier in the year. But the primary driver remains—as it has over the past several quarters—inflation.
The hunt for value
Monica Toriello: In light of consumers’ uncertainty, what do you think spending will look like this holiday season? And how will spending be different this year compared with previous years?
Emily Reasor: We’ve done some survey work on this question. I think some things are going to look quite consistent, and some things are going to look different. In the consistent bucket, it does look like—at the aggregate level—consumers are intending to spend. Yes, there will be holiday shopping. It will probably be at the same order of magnitude: people are planning to spend roughly the same dollar amount as they have in the past.
What will be different is what they’re going to spend it on. They’re going to shift their spending toward needed goods as opposed to discretionary goods. You started this podcast by talking about gift cards—that’s an example of this shift. And one of the biggest categories that people plan to spend on is grocery—so, again, needed goods as opposed to discretionary goods.
Monica Toriello: One thing we’ve discussed in recent ConsumerWise articles is the divergence between consumer sentiment and spending behavior. It used to be that sentiment dictated spending, but now, even when consumers say they’re uncertain about the economy or about their financial outlook, many of them continue to maintain their spending levels. How do you see this playing out in the next few months? And what factors might influence whether consumer spending aligns with or diverges from consumer sentiment?
Emily Reasor: That’s a tough question; that’s asking me to look into my crystal ball. I imagine we are going to see similar spending levels, and we’ll see the mix of categories and price points evolve quite significantly. We’ll also see a return to value, so promotions will be important. Some of the latest data from ConsumerWise shows that two-thirds of consumers plan to start their holiday shopping before Black Friday. That’s a pretty staggering figure. Originally, Black Friday was the kickoff of holiday shopping, and now the majority of consumers are saying, “I’m going to start that process well before then.”
To me, that says, “Yes, I’m still intending to spend, but I am really going to be on the hunt for the right products and at a great value.” We’ve seen several years of high inflation and pricing levels that consumers still don’t feel are normal, so the hunt for deals will be one big theme of 2025.
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Monica Toriello: Speaking of the value-oriented consumer, do we have any data on how they’re trading down? What are their preferred trade-down behaviors? Are they shopping at cheaper retailers? Are they changing their pack-size purchases?
Emily Reasor: Three-quarters of consumers tell us that they plan on trading down to some degree, reflecting the net sentiment change we’re seeing in the United States right now. There are a few different ways that consumers trade down. The first is by changing the quantity of what they’re buying: smaller pack sizes and so on. In certain instances, they delay their purchases. We do see some trading down of brands within a retailer or switching to a different retailer. We expect, of course, to see value channels do very well in a moment like this, because consumers are looking for more affordable items and hotter promotions, so they will trade down to a lower price point or a discount channel.
We do see some use of buy now, pay later—it’s a trend we have seen in previous years, and we expect it to be somewhat stable. It’s not the most prevalent behavior, but we see a fair number of consumers using that option as they try to make ends meet.
Differences among demographic groups
Monica Toriello: Are there any demographic nuances to the early holiday shopping trend?
Emily Reasor: We see the trend across cohorts, but the strongest shift we’re seeing is among millennials. Given the size and spending power of that cohort, we imagine the impact will be quite material: Retailers will see much more spending in August, September, and October—and likely less in November and December—from that group of shoppers.
Monica Toriello: So you’re seeing differences between age cohorts. What about income segments?
Emily Reasor: Quite consistent with what we have seen in other times of high consumer uncertainty, you tend to see more pullback in spending among lower-income households. We are seeing that now as well. There’s some pullback at all income levels, but the largest is at the low-income level.
One implication for retail is that it will be a bit bimodal. On the higher-end price points and categories, the consumer has more stability. There’s lots of trading down into value. But when you’re stuck in the middle, be that in proposition or price point, those tend to be the areas that are the most challenged in retail during these times of significant uncertainty.
Monica Toriello: What are consumers saying about how they plan to divide their budget this year between spending on themselves and spending on others?
Emily Reasor: Self-spending remains fairly modest, at least based on what consumers are telling us they expect to do this holiday season. More of their focus is on those extra dollars being stretched toward gifting. Interestingly, even within gifting, we’re seeing a skew toward essentials: “How can I make sure that my dollars are being spent on things that I’m confident will be put to good use and make a difference to the people receiving my gifts?”
‘Gifting’ as a theme
Monica Toriello: Let’s talk about implications for companies. First, are there any trends or promising opportunities that retailers and brands can take advantage of during this holiday season?
Emily Reasor: The consumer always likes a bit of a treat, a bit of an escape, regardless of the price point. I think that’s why certain categories did extremely well in 2020 and 2021—the beauty category comes to mind, and restaurants are another example—because they provide a little bit of an escape. We see that persist.
Another big implication is that the time to win holiday is right now. Retailers need to think about how things are showing up in stores and online, even how consumers want help from associates as they walk through the aisles. We’ve already talked about value, promotions, offers, and deals, and how important those will be to consumers. I think this idea of the “pull forward” is here to stay—and we believe it’s moving even earlier. So, many of the activities that retailers and their suppliers typically think about in Q4 are bleeding into Q3 in a very material way.
Monica Toriello: Say more about that. What are some specific actions that retailers can take this holiday season? What interesting or unique things are retailers doing to position themselves well for the holidays?
Emily Reasor: We’re starting to see several retailers think about the holidays early. Of course, consumers don’t want to see Christmas things in September—that’s confusing—but they are thinking about gifting. Certain retailers are threading that needle by having more of a generic gifting offering, not just about back-to-school or Thanksgiving or Christmas, but more gifting as a theme, or escape or treat as a theme—so that it strikes the consumer right in the moment but also captures the occasion, knowing that someone might actually be shopping for something three or four months away.
One interesting example is what we’re seeing in the do-it-yourself or home sector. If you look at Home Depot, Lowe’s, or Ace Hardware, these retailers have traditionally been very focused on essentials and have had a consistent assortment throughout the year. But some of what they’ve done over the past couple of holiday seasons is to focus much more on home décor and gifting in Q3 and Q4. That’s clearly an intentional strategy to drive incremental traffic into their stores in the back half of the year and expose a new cohort of shoppers to that category and channel that previously wasn’t spending very much time at all in those retailers.
Another thing retailers should do is think about their merchandising strategy and, as I’ve said, their promotions and their discounting strategy, knowing that those will need to persist for several months leading up to the holiday season. They need to make sure that their strategies are right for consumers but also work within the P&L [profit-and-loss statement]. Retailers are starting to think, “How do I run smart promotions that drive consumer incrementality—giving the shopper what they’re looking for and creating loyalty around the brand, but also making sure it works for the P&L?”
Monica Toriello: What about CPG players? What are some winning moves for consumer packaged goods companies?
Emily Reasor: There’s a difference, of course, between food and nonfood. In food, naturally, we’re still going to see things really concentrate around November and December. But for durable players, apparel players, and others, the time is now for many of those suppliers as they’re supporting their retail partners. And for any direct-to-consumer channel, the same trends that their retail partners are seeing, they’re going to experience—so, more gifting demand earlier than they might have seen in the past.
Finally, things like supply and out-of-stocks are always a killer during the holiday season. That focus on operational excellence will need to be sustained over an extended period, as consumers are already thinking about these occasions even as early as August and September.
Monica Toriello: Are there product categories that you expect to be hot this holiday season? Or categories that could see a decline compared with previous years?
Emily Reasor: Unfortunately, our ConsumerWise research indicates that this will be a challenging year. There are more reds than greens by quite a long margin in terms of what consumers are telling us they plan to spend on. There aren’t breakout categories like we saw in the COVID recovery years. At the aggregate level, we expect most categories to be flat or down, as consumers are telling us they expect to cut back relative to their previous year’s spending.
The AI advantage in personalization
Monica Toriello: In 2024, personalized promotions and loyalty programs were among the things we emphasized to retailers and CPG companies. Any insights this year on either or both of those?
Emily Reasor: Those capabilities are hugely important to retailers, and I think they’re even more important now, for a few reasons. As we said, the 2025 consumer really is going to be looking for a deal. They want the right product at the right price. So, if I’m a retailer, knowing that—and also knowing that I won’t want to run mass promotions for weeks on end—how do I use more targeted promotions to deliver value to the consumers who need it most? I can do that through loyalty programs. That will be increasingly important this year. Having great value and delivering other benefits through personalized interactions with shoppers will make a difference in which retailers come out on top this holiday season.
Monica Toriello: On this front, do companies that use generative AI or analytics have an edge over those who don’t?
Emily Reasor: We’re past the pilot phase on a lot of this. At companies that use analytics and gen AI at scale in this context, we’re seeing two major differences. The first is that they’re able to get much more granular on how they’re personalizing. It’s not just a few high-level segments; they’re starting to personalize for very micro slices of consumers because they can operate at a different level of granularity.
The second is speed: Agentic AI is allowing companies to get things done at an entirely different pace than they have in the past. In this context, what that means is they can spot trends—and react to those trends—more quickly, whether that’s through personalized promotions or consumer communications. Gone are the days when a retailer sets its holiday plan and then just watches it for a couple of months. The retailers that are winning are those that can adjust very quickly—and generative AI is a huge part of what makes that possible.
‘The best deal of the season’
Monica Toriello: If you were to tell a retailer, “These are the two or three things that you absolutely must do this holiday shopping season,” what would those things be?
Emily Reasor: First, you have to nail value—both in reality and communication. Consumers want to feel like they are getting a deal, and they are going to be particularly choosy about where they shop and how much to spend, so having both communications and actual delivery of great consumer value will be critically important.
Second, recognize that we will see more spending on essentials and less on discretionary items. So, regardless of the categories you play in, is there a way that you can offer an assortment that allows consumers to feel like they’re gifting needed things to friends and family? That, I think, will make a huge difference.
Third, recognize that spending on holiday shopping and researching holiday purchases have begun. Consider that in how you show up in stores and online. Yes, it’s back-to-school season, but many consumers are already thinking about Christmas, so it’s important to make sure that your offering and in-store merchandising reflect that.
In 2024, many retailers came out with earlier promotions; they pulled Black Friday forward. They even talked about that very directly: “These are the same deals you’re going to get on Black Friday,” or “If you purchase this item early, we will price-match it. If you see a deal later, we’ll refund you the difference.” That’s a big promise: “I guarantee I’m giving you the best deal of the season, and I’ll stand by it. I’ll reimburse you if you find something better months later.” I think that makes a difference to the consumer, because, of course, the flip side of early shopping is, “I’m worried that deals will get better as we get closer to the end of the year.” Giving consumers the confidence that they’re getting the best deal is important, and I think we will see even more of that this year.
But it’s tough to do. Typically, those promotions are well funded and well planned to make sure that they work within the P&L. But threading the needle of offering promotions that drive incrementality and that you can afford—that’s something that the winners are getting right.
Monica Toriello: If two-thirds of consumers have already done their shopping by Black Friday, what does that mean for Black Friday as a retailer milestone?
Emily Reasor: The obvious implication is that the whole holiday season is no longer won or lost over a day and a weekend. That said, it’s a really important day and weekend. You still have to win Black Friday and Cyber Monday. It’s just that we don’t expect to see the gargantuan sales spikes that, five or ten years ago, retailers experienced on those days.
I think we’ll also see much more research and consideration before purchase. A lot of that consumer activity is happening now. It may well be that consumers don’t finish their shopping as early as they imagine they’re going to. They’re just starting the process—and the deal hunting—earlier in the season.
