Holiday spending, especially by Gen Z, is expected to drop this year, survey says

PwC's survey forecasts a 5% average decline in U.S. holiday spending to $1,552 per consumer, largely driven by a significant 23% planned reduction from price-sensitive Generation Z, who are also prioritizing experiences over goods. This trend signals heightened price sensitivity across the consumer base and an uncertain holiday season for retailers, who must navigate potential tariff impacts and consumers wary of rising costs.

Analysis

A recent PwC survey signals a cautious outlook for the upcoming holiday retail season, with projected average consumer spending declining 5% year-over-year to $1,552. This overall drop is disproportionately driven by Generation Z, whose members plan a significant 23% reduction in spending, a stark reversal from their planned 37% increase in the prior year. This cohort's pullback is attributed to their acute price sensitivity, prioritization of experiences over goods, and financial pressures from debt and lower incomes. The consumer landscape appears bifurcated, as Baby Boomers are the only generation planning to increase spending, with a projected 5% rise. Broader consumer sentiment is shaped by weariness over the rising cost of living and the perceived threat of higher prices from potential tariffs, which is intensifying deal-seeking behavior and price consciousness across all demographics, creating an uncertain operating environment for retailers.

Key Decisions for Investors

• Investors should exercise caution on discretionary retail stocks, particularly those targeting younger, trend-driven consumers, given Generation Z's planned 23% spending cut on goods.
• Consider overweighting exposure to companies in the experiences sector, such as travel and live entertainment, which are being prioritized by younger consumers, while also identifying retailers that cater specifically to the Baby Boomer demographic, who plan a 5% spending increase.
• Retailers with strong value propositions, such as off-price models or robust private-label offerings, may be better positioned to capture share from an increasingly price-sensitive consumer base.
• Monitor early promotional activity and margin guidance from retailers, as the survey suggests a high-stakes holiday season where heavy discounting may be necessary to drive volume, potentially compressing profitability.