The Gen Z Effect: Navigating Sector Risks in Consumer Discretionary Stocks During the 2025 Holiday Season

The 2025 holiday season is poised to redefine consumer discretionary markets, driven by Gen Z’s evolving spending habits. This generation, now a critical demographic for retailers and entertainment providers, is reshaping sector dynamics through its unique blend of caution, digital fluency, and value consciousness. For investors, understanding these shifts is essential to assessing risks and opportunities in stocks tied to retail, e-commerce, and entertainment.

Gen Z’s Holiday Spending: A Paradox of Caution and Resilience

Despite economic headwinds—including inflation, tariffs, and rising prices—Gen Z plans to spend 23% less on holidays in 2025 compared to 2024, contributing to a 5% overall decline in consumer discretionary spending [1]. This decline, however, is less severe than the broader trend, as Gen Zers are 2.3 times less likely than the general population to cut back on holiday spending (15% vs. 34%) [2]. Their resilience stems from a preference for early shopping, in-store events, and digital-first strategies. For instance, only 18% of Gen Zers find early holiday inventory problematic, compared to 60% of baby boomers [5]. This adaptability positions them as a key demographic for retailers seeking to mitigate broader spending declines.

Sector-Specific Impacts: Retail, E-Commerce, and Entertainment

Retail
Gen Z’s appetite for in-store experiences—such as pop-up shops, Santa events, and interactive displays—presents both risks and opportunities. While 27% of shoppers plan to spend over $1,000 during the holidays, a 27% drop from previous years, Gen Z’s engagement with physical retail remains robust [5]. Retailers must balance affordability with experiential value, leveraging AI-driven personalization and flexible payment options like BNPL to retain this cohort [1]. However, supply chain disruptions from tariffs and inflation could strain margins, particularly for brands reliant on imported goods [6].

E-Commerce
Mobile commerce dominates Gen Z’s holiday shopping, accounting for 90% of e-commerce growth in 2025 [5]. Platforms like TikTok and Instagram have become critical for product discovery, with 52% of Gen Zers making purchases directly on social media [4]. AI-powered tools, such as chatbots and voice commerce, are increasingly used for research and decision-making [5]. Yet, the sector faces challenges: 34% of consumers plan to spend less than $100 on holidays, and retailers must compete with private-label brands like Costco’s Kirkland Signature, which attract budget-conscious shoppers [6].

Entertainment
Gen Z’s shift toward digital and value-driven entertainment is reshaping the sector. While they plan to cut holiday-related purchases by 23% compared to 2024, they prioritize immersive, trend-aligned experiences [1]. Social media influencers play a pivotal role, with 56% of Gen Zers attributing purchases to influencer content in 2025 [3]. This trend favors entertainment providers that align with Gen Z’s values—authenticity, sustainability, and interactivity—over traditional physical gifts. However, budget compression could limit spending on non-essential experiences, particularly if inflation persists [2].

Strategic Risks and Opportunities

The 2025 holiday season is marked by a compressed timeline and heightened price sensitivity. Retailers must act swiftly to adapt promotional strategies, such as tiered offers and omnichannel campaigns, to meet Gen Z’s expectations [5]. For investors, off-price retailers and mass merchandisers—like Walmart and Target—are likely to outperform, given their focus on affordability and value [6]. Conversely, luxury brands and high-end entertainment providers may face headwinds unless they integrate Gen Z’s preference for digital engagement and social responsibility into their offerings.

Conclusion

Gen Z’s holiday spending behavior is a double-edged sword for consumer discretionary stocks. While their resilience offers a buffer against broader economic downturns, their demand for agility, personalization, and value creates operational and strategic challenges. Retailers and entertainment providers that embrace AI, social commerce, and experiential marketing will likely thrive. For investors, the key lies in identifying companies that can balance Gen Z’s digital-first preferences with the realities of a budget-conscious market.

Source:
[1] PwC: Gen Z Plans to Spend 23 Percent Less On Holiday [https://sourcingjournal.com/topics/consumer-insights/pwc-holiday-spending-generation-z-tariffs-gifting-cyber-week-1234764985/]
[2] What to Expect for the 2025 Holiday Season [https://pro.morningconsult.com/analysis/consumer-holiday-2025-research]
[3] Gen Z Media Consumption in 2025: How Social Media Influencers Are Reshaping Spending [https://civicscience.com/gen-z-media-consumption-in-2025-how-social-media-influencers-are-reshaping-spending/]
[4] Decoding Gen Z & millennial holiday shopping trends [https://www.bazaarvoice.com/blog/decoding-gen-z-millennial-holiday-shopping-trends/]
[5] Holiday shopping is entering a Gen Z, mobile, and AI era [https://www.emarketer.com/content/holiday-shopping-entering-gen-z--mobile--ai-era]
[6] Two-Thirds Of Consumers Cut Spending Before Tariffs [https://www.forbes.com/sites/shelleykohan/2025/08/15/two-thirds-of-consumers-cut-spending-before-tariffs-even-hit/]