The University of Michigan’s latest survey reported that US consumer sentiment fell to 50.3 on a 100-point index this month – down 6.2% from October, and down 29.9% year-on-year – nearing its lowest-ever levels. At the same time, data shows that apparel and footwear prices are up over last year. This combination could set up a fraught holiday shopping season.

Clothing and beauty are among the top three categories where consumers are still planning to spend this year, alongside electronics, per BCG’s recent report on year-end sale events. Roughly half (52%) of consumers intend to shop on clothing, consistent with 2024, and 33% plan to spend on beauty, up 3% from last year. The US did, after all, drive luxury growth in the third quarter. But this growth was driven by a relatively tight group of high net worth consumers who are insulated from the average shopper who does indeed feel the squeeze.

Going into the holidays, consumer anxiety remains high. According to a recent Credit Karma survey, 47% of Americans feel stressed about affording the holidays this year. “Consumer sentiment is marred by uncertainty. A lot of people are worried about their financial futures and are still struggling with high prices. This is making people much more considered in their purchasing habits,” says Neil Saunders, managing director and retail analyst at GlobalData.

Though it’s high, this anxiety – about rising price increases for essential items and concern about still-to-come price hikes due to tariffs – is slightly more muted than last year, per BCG, which found smaller net spending reductions in categories including jewelry, clothing and furniture. “The general consumer economy isn’t terrible, so folks are still spending money – even if they are doing it more carefully,” Saunders says. Consumers tend to exhibit resilience during this period, and after a soft fall season, there’ll be pent up demand going into the holidays, adds Polly Wong, president of marketing firm Belardi Wong.

BCG managing director and partner Jeff Lindquist calls sentiment “cautious but far from pessimistic”, noting increased comfort in spending on beauty and fashion. “What we are seeing is a more intentional consumer rather than a restrained one: people are planning earlier, comparing prices carefully, yet still choosing to spend on things that feel rewarding.” Brands need to be smart about how they market this season, experts say, for shoppers are willing to spend – but wallets are tight.

Price hikes

Brands should be wary about raising their prices too steeply, experts caution. Consumers are mindful of tariff-induced price hikes; 81% are concerned about the impact of tariffs on their holiday spending, according to Credit Karma.

Across categories, prices are increasing, according to recent data from intelligence platform Competitoor. Affordable luxury handbag prices are up 12%, while luxury handbag prices have increased 7% for the year ended 30 October. CEO Maurizio Catellani puts these increases largely down to tariff-related operating cost increases, and expects that consumers will be more selective as a result.

Some suggest that brands should hold off on increasing prices until the new year, so as not to put consumers off during what, for many, is the most important quarter of the year.

“Brands that add value can justify some modestly higher prices, but there is still sensitivity as there is a fine balance between a modest price increase and tipping into the territory of being seen as unreasonably priced,” Saunders says. In his view, the fact that luxury prices spiked already gives accessible luxury a little more flexibility in its ability to modestly raise prices, given the consumer reference point is often to look at the relative price to high-end luxury.

Value perception also remains an issue for consumers who no longer believe luxury means quality. Belardi Wong found that, this season, even affluent consumers are taking more time to consider their purchases. According to the firm’s client performance data (which represents over 300 of premium and luxury brands), site traffic is up 4% year-on-year, but conversion rates are down 12%. Demand remains consistent (as evidenced by this quarter’s earnings), but brands need to do more to convince shoppers to spend on them.

This is where affordable luxury brands can win, Catellani says. “Shoppers are leaning into this price bracket, especially when the value proposition is tied to quality,” he says. Because consumers are forced to prioritise – groceries take precedent over fashion – those who restrain from raising prices have more of a chance of grabbing that share. Consumers are more informed and selective than ever, Lindquist adds, noting that there is little room for accessible luxury and prestige beauty to increase prices without pushback. “Brands that balance pricing discipline with clear storytelling about what makes their products worth it will maintain trust,” he says. “Those that take price without that clarity risk losing consumers who are now far more informed and selective in how they spend.”

Ultimately, to capture consumers’ constrained spend, brands need to invest in storytelling that reinforces worth, Lindquist says. “That means highlighting craftsmanship, longevity or ingredient quality rather than relying solely on discounts.”

Bright spots

Beauty is a likely bright spot this season. Saunders says the category is slightly more insulated from the crunch, as at least some beauty purchases are seen as essential. “Many are quite purposeful and solve problems in things like skincare, and a lot of consumers still see beauty as a worthwhile indulgence,” he says. Lindquist agrees, adding that the entry-prestige segment is expected to outperform as consumers seek ‘small luxuries’ that deliver emotional lift without major spend. Fragrance will be a leader for gifting, he adds, as will lip and eye kits, as well as body care. “Hair and body care are also gaining traction as consumers trade across categories within beauty rather than out of it,” he adds.

By and large, beauty falls at a lower price point than fashion. As Elf Beauty CFO Mandy Fields told Vogue Business ahead of last week’s earnings call, shoppers often buy the company’s lower-ticket items as part of their holiday gifting. “We always say whether we put it in a kit or you put it in a kit, Elf is very giftable,” she said.

“Beauty overall looks better positioned this season, while fashion will need sharper value storytelling and disciplined promotions to capture demand,” Lindquist adds.

When it comes to fashion GlobalData expects handbags and jewelry to do well, per the firm’s gifting surveys. Competitoor’s Catellani agrees on handbags, and adds denim to the mix of categories he expects to perform. Lindquist anticipates strong momentum in social-driven trends – especially in the accessories category. After all, over 55% of shoppers say they’re using at least one social platform for discovery (Instagram; TikTok; YouTube), up about 2% on last year.

Across the board, brands should keep gifting front of mind, experts say, as assortment discipline will be key this season. “For fashion, that means curating strong hero pieces and gifting capsules. For beauty, that means leaning into fragrance, limited editions, and entry-prestige formats that feel special but accessible,” Lindquist says. “The winners will be those that make the consumer feel both smart and inspired when they spend.”

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