Holiday Discounts Shrink as Tariffs Impact Consumer Spending

U.S. shoppers are bracing for smaller holiday discounts this season, largely attributed to tariffs imposed during former President Donald Trump‘s administration. According to projections from Adobe Analytics, online spending is expected to increase by just 5.3 percent, reaching $253.4 billion, a significant slowdown compared to last year’s increase of 8.7 percent.

Vivek Pandya, director at Adobe Digital Insights, indicated that discounts will likely be weaker than those seen in 2024. The most substantial deals this year are projected to average around 28 percent for electronics, down from 30 percent last year. Despite the overall drop in discount levels, consumers will continue to seek value as they navigate a higher cost of living, particularly with staple items like groceries remaining expensive.

Recent legal decisions regarding Trump’s tariffs have left many consumers feeling the pinch. A U.S. Court of Appeals for the Federal Circuit ruled that most tariffs imposed were not justified under the emergency powers law. Nevertheless, the tariffs remain in effect as the administration appeals the ruling. Pandya noted that while stockpiling has prevented many items from going out of stock online, discounts remain limited due to these ongoing costs.

The holiday shopping landscape is shaping up to be dynamic, with Cyber Monday expected to be the largest online shopping day of the year. Sales on that day are predicted to rise 6.3 percent to $14.2 billion. Additionally, shoppers are anticipated to spend approximately $9 billion during Amazon’s Prime Day event on October 7 and 8, with similar events hosted by Target and Walmart further driving consumer spending.

Retailers are displaying mixed forecasts ahead of the holiday season. While Target and Best Buy maintain their annual forecasts, Walmart and Macy’s have raised theirs, indicating optimism in certain sectors. Conversely, executives at Mattel have expressed concerns about “general uncertainty regarding consumer demand,” even as they anticipate strong interest in popular products like Hot Wheels and Barbies.

Consumer behavior is shifting, with many opting for higher-ticket items as competitive discounts encourage them to “trade up” in their purchases. According to Adobe, the share of units sold for premium goods is expected to increase significantly: 56 percent in sporting goods, 52 percent in electronics, 39 percent in appliances, 32 percent in personal care, and 26 percent in tools and home improvement. In contrast, grocery sales are projected to decrease by 3 percent, and furniture sales are expected to drop by 8 percent as consumers shift towards lower-priced items in these categories.

Mobile shopping is set to dominate the online landscape this holiday season, accounting for 56.1 percent of total online spending compared to desktop purchases. The popularity of “buy now, pay later” options is also on the rise, with projected online spending reaching $20.2 billion, a $2 billion increase from the previous holiday season. These financing options gained traction during the pandemic, particularly among younger consumers, allowing them to make larger purchases without facing immediate interest costs.

Despite these trends, a report from PwC anticipates that U.S. holiday spending could decline this year, especially among Gen Z consumers, who are expected to reduce their expenditures. Americans are projected to spend an average of $1,552 during the holiday season, representing a decrease of 5 percent from the previous year. As the holiday shopping season approaches, consumers will navigate a landscape marked by higher prices and cautious spending habits, making strategic purchasing more important than ever.