Has the recession permanently changed Americans' holiday shopping habits?

Commentary about business and finance.
Dec. 23 2010 4:03 PM

Have Yourself a Frugal Little Christmas

Has the recession permanently changed Americans' holiday shopping habits?

This year, Americans are spending less on gifts. Click image to expand.
This year, Americans are spending less on gifts

It might be the saddest holiday story of the recession: Postal service workers who process letters addressed to Santa in the North Pole reported this month that kids are asking for more socks, shoes, and coats—necessities, rather than Barbies or Nintendos. "The need is greater this year than I've ever seen it,"head elf Pete Fontana told USA Today."One little girl didn't want anything for herself. She wanted a winter coat for her mother."

Annie Lowrey Annie Lowrey

Annie Lowrey, formerly Slate’s Moneybox columnist, is economic policy reporter for the New York Times.

It is the third recession-era holiday season. And although the economy has picked back up in recent months, Americans are clearly still adjusting to the new normal of high unemployment, sagging wages, increased poverty, and general economic malaise. Tear-jerking Santa stories aside, how have the bad economic times changed the way Americans treat—and shop for—the holidays? And what might be the effect going forward?

For one, Americans are certainly spending less on gifts due to the persistent hangover of the recession. Overall holiday spending looks as if it will tick up this year but will probably remain lower than it was in 2004, 2005, 2006, or 2007. And about half of Americans say they'll spend less on gifts this year than the last. But they don't seem to be lamenting the cutbacks, becoming frugal both out of necessity and out of choice. According to a Strayer University poll, 77 percent of Americans say the economy "gives them a chance to focus on what is truly important."

Still, the gift economy remains an economy, and Americans certainly have not reined in their wishes, even as they've pulled back their wallets. Indeed, the opposite. Before the recession hit, Americans mostly requested things like electronics, clothing, and books. Now, more request cash (even though it tends to make a bad gift) and luxury items like jewelry made dramatic gains on people's Christmas lists this year.

But Americans might be setting themselves up for disappointment. Polls show people are planning to buy "more practical" gifts this year, plus purchasing more "joint" gifts for households rather than individuals. They are also making more gifts at home. Some 33 percent of people intend to give homemade gifts, up about 20 percentage points over the course of the recession. They are also increasingly open about "regifting." This year, about one-third of people said they regifted, up from less than one-quarter before the crisis hit. (Perhaps, at least, they can make the gift seem nicer by wrapping it up with a bow.)  

Among the most dramatic recession-era gift-giving changes comes in the form of gift cards. Over the course of the recession, the pre-loaded cards became the single-most-requested holiday item—taking over from electronics and cash. But people have been giving fewer and fewer of them, according to the National Retail Foundation. (Why? Probably because recipients know exactly how much you spent, and they can seem quite impersonal.) That will come as sad news to retailers. About two in three people end up spending more than the value on the card when they redeem it. And a sizable proportion of people—about 25 percent—never end up using the gift card at all, meaning the retailer gets the cash for free.

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Americans have also changed where they shop over the course of the recession. For one, dollar stores have become more popular as Americans generally eschew luxury goods and trade down from stores like Target to Family Dollar. Falling wages and rising unemployment, of course, explain the rise of dollar stores. But even wealthier Americans are just being more frugal. Indeed, "95 percent of our trade-down customers"—ones who shop at dollar stores because they want to, not because they need to—"are saying that, regardless of what happens to the economy, they're going to continue to shop with us," Rick Dreiling, the chairman of Dollar General, told the Wall Street Journal.

More generally, the recession has turned a nation of crazed, credit-obsessed, imprudent spenders into a nation of haggling, comparison-shopping coupon-clippers. Price discounts and "everyday low prices" are far and away the most important factors that shoppers cite when looking for gifts, with features like "selection," "quality," "customer service," and "convenience" down since the start of the recession.

And the bad economic times have also sped up the drift of customers from bricks-and-mortar stores to online retailers—all for the easier comparison shopping. This year, according to a poll by Marist, 42 percent of Americans said they are purchasing some gifts online; 11 percent, all gifts; and 47 percent, none. In 2007, 37 were doing some shopping online; 4 percent, all shopping; and 58 percent, no shopping.

Moreover, the recession has turned Americans off of plastic. One major recession-era shift has been away from cards and toward cash, as Americans pay down their debts. The trend is most exaggerated among young customers. About 70 percent of people aged 18 to 29 say they won't use credit cards to pay for holiday purchases, compared with 48 percent of people 60 and older.

It all spells a more-frugal, smaller-scale Christmas, filled with more personal gifts. But that isn't necessarily a bad thing. Researchers have found that consumption-focused holidays are less happy than religion and family-focused holidays. Plus, one way or another, giving makes Americans feel good. And although some economists theorize that the children of recessions tend to keep their spending in check, odds are good that we'll all be back to hitting the plastic and going crazy at the malls in a few years' time.

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