The Shrinking Holiday Spending Habit: A Structural Shift in U.S. Consumer Behavior

The U.S. holiday retail season, once a reliable barometer of consumer optimism, is undergoing a seismic shift. From 2020 to 2024, holiday sales grew steadily, peaking at $957.3 billion in 2023. But 2025 marks a turning point: spending is projected to decline by 5%, the first meaningful drop since the pandemic. This isn't just a cyclical dip—it's a structural reordering of how Americans allocate their discretionary dollars. For investors, the implications are profound.

Generational Divides and the New Spending Paradigm

The decline is most pronounced among Gen Z, who plan to cut holiday budgets by 23% in 2025. This generation, now 18–26 years old, is reshaping consumer behavior with its focus on value, sustainability, and digital-first engagement. Unlike previous generations, Gen Z prioritizes experiences (travel, dining) over material goods, and their spending habits are increasingly influenced by social media and AI-driven recommendations. Meanwhile, Millennials, Gen X, and baby boomers are maintaining or slightly increasing their holiday spending, creating a fragmented market.

Morgan Stanley's AlphaWise survey highlights this divide: Gen Z and Millennials, collectively 40% of the U.S. population, are optimistic about their financial futures but cautious in their spending. Over half of 22- to 34-year-olds report being “very optimistic” about their personal finances, yet they are shifting toward budget-conscious choices like gift cards (used by 52% of consumers) and private-label brands. This duality—optimism paired with fiscal restraint—signals a long-term recalibration of consumer discretionary spending.

The Rise of Omnichannel Retail

The 2025 holiday season underscores the dominance of omnichannel strategies. While 51% of consumers plan to shop via online marketplaces like Amazon and Etsy, 39% will buy online and pick up in-store (BOPIS). This hybrid model is critical for retailers like Walmart and Target, which have invested heavily in fulfillment infrastructure. The Cyber Five (Thanksgiving to Cyber Monday) is expected to account for 40% of all holiday spending, with 80% of that occurring within the first five days.

Investors should monitor companies that excel in seamless integration between digital and physical retail. Amazon's stock, for instance, has surged as it dominates e-commerce and expands its logistics network. Meanwhile, traditional retailers that fail to adapt—such as those with underdeveloped BOPIS capabilities—risk losing market share to more agile competitors.

Payment and Fulfillment Innovations

Consumer preferences are also reshaping payment and fulfillment ecosystems. Credit card usage has risen sharply, with 52% of shoppers now listing it among their top three payment methods. Cash, once in decline, is staging a modest comeback (48% of shoppers), likely as a budgeting tool. Gift cards and prepaid cards are gaining traction, with 27% of consumers preferring them—a 14% increase from 2024.

Fintech firms must adapt to these trends. While Gen Z and Millennials are digital natives, they still favor traditional banks for credit and savings. This challenges pure-play fintechs like Chime and Robinhood, which may need to pivot toward hybrid models that blend digital convenience with in-person services.

Sector-Specific Impacts

1. Travel and Experiences: Gen Z's prioritization of travel is boosting airlines and hospitality. Delta Air Lines, for example, reported a 60% increase in co-branded credit card spending compared to 2019. Investors should consider airlines with strong loyalty programs and cost-efficient operations.
2. Resale and Circular Economy: The global resale market is projected to reach $1.2 trillion by 2025, driven by Gen Z's preference for secondhand goods. Platforms like Poshmark and ThredUp are well-positioned to capitalize on this trend.
3. Real Estate and Student Housing: Gen Z's focus on homeownership and higher education supports demand for residential real estate and student housing. Developers with properties near universities could see long-term gains.
4. Discount Retail: As consumers prioritize value, discount retailers like Dollar General and Family Dollar are gaining traction. These chains offer affordable alternatives to premium brands, aligning with the budget-conscious mindset of younger shoppers.

Risks and Opportunities

While the shift toward value-driven spending presents opportunities, it also carries risks. FOMO fatigue is already evident: 29% of Gen Zers have reduced nonessential spending in 2025 due to financial anxiety. Similarly, sustainability fatigue is emerging, with eco-friendly product interest declining in markets like the EU5. Tariff uncertainty and inflation could further dampen discretionary spending, particularly among lower-income consumers.

Investors must balance agility with resilience. High-growth areas like AI-driven retail (e.g., Shopify's personalized shopping tools) and resale platforms offer upside, but they should be paired with investments in resilient staples like discount retailers and purpose-driven brands (e.g., Patagonia).

Strategic Recommendations

1. Allocate to Omnichannel Leaders: Prioritize retailers with robust BOPIS and logistics networks.
2. Invest in Experiential Sectors: Airlines, travel services, and hospitality firms are poised to benefit from Gen Z's travel-centric spending.
3. Monitor Fintech Adaptation: Support fintechs that blend digital tools with in-person banking to meet Gen Z's hybrid preferences.
4. Diversify into Resale and Circular Economy: Platforms like Depop and Vinted are capturing Gen Z's demand for sustainable, cost-effective goods.

Conclusion

The shrinking holiday spending habit is not a temporary blip but a structural shift driven by generational values, economic realities, and technological innovation. For investors, the key lies in understanding these dynamics and positioning portfolios to capitalize on the evolving consumer landscape. As the retail sector navigates this transition, agility, adaptability, and a deep understanding of generational priorities will separate winners from laggards.