Key Findings

  • McKinsey says consumers are planning their holiday shopping cautiously amid persistent inflation and an uncertain economic outlook, cutting back on non-essential and semi-essential purchases.
  • In a report based on a quarterly survey, McKinsey noted that a quarter of surveyed shoppers plan to reduce holiday spending compared to the same period last year, while another 46% said their budgets would remain flat with 2024.
  • "Many consumers are approaching the holiday season with caution and pragmatism," McKinsey said in the report, adding that "consumer optimism has been declining since November 2024."

Deep Insights

McKinsey's survey aligns with recent findings from The Conference Board, the Federal Reserve Bank of New York, and the University of Michigan, all indicating that inflation has eroded consumer confidence.

"Sentiment across income groups and generations reflects growing caution and uncertainty," McKinsey said. "More people expressed mixed feelings about the economy, highlighting that economic pressures are weakening consumer confidence."

McKinsey noted that price pressures rank as the top consumer concern, as several inflation indicators remain above the Federal Reserve's 2% long-term target.

Meanwhile, concerns over the highest tariffs in decades have eased, with the share of consumers citing tariffs as a top challenge dropping by 24% compared to the previous quarter's survey.

According to McKinsey, for the remainder of 2025, consumers plan to prioritize spending on essentials such as gasoline, meat and dairy, baby products, and non-alcoholic beverages.

At the same time, they plan to reduce purchases of semi-essential items such as cars, fitness and health services, beauty products, and vitamins, supplements, and over-the-counter medications.

"The most notable shift is a sharp decline in willingness to spend on non-essentials," McKinsey said. Consumers plan to cut spending on international air travel, sports and outdoor equipment, home improvement and gardening supplies, cruises, hotel resorts, and food delivery app orders.

McKinsey pointed out that all income groups plan to reduce discretionary spending, though higher-income consumers show a slightly lower tendency toward frugality.

Nearly one in five Baby Boomers plan to skip holiday shopping entirely, a rate 8 percentage points higher than the all-generation average.

Among Millennials, 37% plan to start holiday shopping before October, well above the all-generation average of 28%. McKinsey surveyed more than 4,000 consumers last month.

About one-third of consumers plan to shop primarily or exclusively online, while only 16% intend to make most or all of their purchases in physical stores.

At the same time, "the in-store shopping experience still holds value for many," McKinsey said, with 54% of consumers planning a hybrid approach combining online and offline shopping.

Gift cards are the top planned purchase category for the holiday season, favored by 46% of Baby Boomers. Groceries, clothing, toys, and electronics round out the top five items on holiday shopping lists.

McKinsey advises retailers to win consumers this holiday season by "offering value options for price-sensitive shoppers, strengthening omnichannel experiences for seamless online-offline integration, and tailoring strategies to the distinct spending priorities of different demographic groups."