The following is an excerpt from McKinsey’s latest Consumer Pulse Survey, outlining how consumers feel about holiday spending and what retailers can do to adapt to the mixed signals.

As the weather cools and the air turns crisp, US retailers are once again facing challenges for the holiday-shopping season. The past couple of years saw severe, systemic supply chain disruptions and high case rates for COVID-19. However, the landscape is more nebulous this time. Consumer demand has softened, while inventory levels are higher than they’ve been in years, and company earnings continue to face scrutiny from Wall Street as some profits decline.

Meanwhile, US consumers continue to send mixed signals. Their sentiment about the economy remains historically low, and they still have concerns about inflation. They’re looking for savings by trading down and seeking value where they can find it. But many of them have cash to spend—and they say they’re not just willing but eager to spend and splurge. People in the United States are more excited for the holidays than they’ve been in years.

With this divergent dynamic in mind, many retailers have kicked off the holiday-shopping season earlier than ever. Some retailers are doubling down on membership benefits to drive loyalty and increase their share of wallet. Others are announcing price match guarantees and widening return windows during the holidays to reach more consumers. Retailers are also making adjustments that are less visible to consumers: by using data and investing in automation to predict shopping preferences and manage inventory, or by hiring fewer seasonal employees in anticipation of slower growth.

The findings from McKinsey’s latest Consumer Pulse Survey of more than 1,000 consumers the United States, sampled and weighted to match the general population, show that there are good reasons for US retailers to be optimistic. The following are the key discoveries:

The holidays are back. After nearly three years of suppressed behavior resulting from the COVID-19 pandemic, people are primed to go all out to celebrate for the holidays. In the survey, 55 percent of US respondents say they are excited about holiday shopping, and most people have the savings to spend.

Holiday shopping has already begun. Concerns about ongoing inflation and product availability—along with retailers’ early planning this year—have encouraged US consumers to shop earlier than ever: 56 percent have already started shopping in October instead of waiting until later in the season.

Consumers are looking for value. Given economic uncertainty, consumers are being more surgical about how they spend. Nearly half of US survey respondents say they would switch stores if they found a better price elsewhere.

Consumer-facing companies can capitalize on US consumers’ optimism and willingness to spend during the holiday season by focusing on providing value:

• Adapt to your consumer. Not all consumers are the same, and retailers can tailor their approaches to the people they want to reach. Higher-income consumers have more to spend and are more willing to splurge on discretionary items, whereas lower-income consumers are more likely to give holiday gifts that fill a need. Given people’s propensity to delay purchases, retailers should focus on inspiring consumers with the right items at the right price and at the right time.

• Set earlier, wider-reaching promotions. If retailers haven’t already done so, they should kick off the holiday-shopping season now with distinctive value, differentiated promotions, and personalized offerings. US consumers are shopping already and looking for value, so building on their enthusiasm early could lead to momentum. Leveraging excess inventory to trigger the holiday spirit now can have the added benefit of clearing store space for new arrivals after Black Friday in late November. Providing unique in-store offerings and services could reach more consumers now that foot traffic is back up.
  
• Allow for more purchasing flexibility. By offering convenience and accessibility to value, retailers can reach more consumers and garner more loyalty. That could include employing a price match guarantee or offering flexible fulfillment options, such as in-store pickup, expedited shipping toward the end of the holiday season, and temporarily widening the window for returns.
  
• Maintain a long-term pulse on trade-offs. Delivering value will help retailers win this holiday-shopping season. But for long-term health, companies should also constantly consider the trade-offs between the holiday frenzy and the longer-term potential impact of any changes on brand image and overall profitability. Understanding details on customer acquisition during the holidays and deploying customer-relationship-management tactics soon after the holidays can help retailers retain loyalty.

Colleen Baum is a partner in McKinsey’s New York office; Joyce Chai is an associate partner in the Bay Area office, where Kelsey Robinson is a senior partner; Tamara Charm is a partner in the Boston office; and Tom Skiles is a capabilities and insights expert in the Chicago office.

Colleen is a partner in McKinsey’s Retail Practice and leads our retail real estate work in North America. She helps retailers and apparel brands drive performance, and delivers expertise in brand and category strategy, store footprint and format innovation, assortment localization, merchandise planning and allocation, supply chain network planning, and omnichannel fulfillment.

Before joining McKinsey, Colleen worked as supply chain strategy manager at Home Depot, where she led a team responsible for selecting distribution center locations, managing store service assignments, and designing a multi-tier inventory positioning model.  She holds a BS in industrial and systems engineering from the Georgia Institute of Technology.