Americans are making an invisible trade-off this holiday season: gifts over groceries. While headline retail forecasts project U.S. sales will cross the $1 trillion mark for the first time, a deeper look reveals this demand is being funded by consumer sacrifice. New data shows that 82% of shoppers are planning to cut back on everyday essentials, including groceries, to preserve their gifting budgets. This economic paradox creates an urgent, unstable environment for small businesses (SMBs) who must now navigate demand driven by emotion, not financial security.
A Trillion-Dollar Holiday Season
The National Retail Federation expects total U.S. holiday retail sales in November and December to reach roughly $1.01-$1.02 trillion in 2025, crossing the trillion-dollar mark for the first time (excluding autos, gas, and restaurants). On the surface, that milestone suggests a strong environment for retailers, including small businesses.
This growth is funded by sacrifice, not financial comfort. Surveys show shoppers, while planning to spend an average of 25% more on gifts than last year, are simultaneously cutting back: 82% report they plan to trim spending on groceries and everyday essentials to preserve their gift budgets.
For SMBs, this mix, higher gift spending alongside cuts to essentials, means headline growth can hide real financial stress in their customer base. Stores may see strong traffic in November and December, but much of that demand comes from households with very little budget flexibility.
The risk is that owners treat this as durable demand and make longer-term decisions on that basis: bigger inventory bets, deeper discounts, extended hours, or added fixed costs. If consumers pull back in early 2026 to repair their finances, small businesses that treat this season as a new normal rather than an exception could be left overextended.
What This Consumer Trade-Off Really Signals for SMBs
Research highlights how deeply emotional holiday gifting has become:
- 42% of consumers in a QuickBooks survey say giving to loved ones matters more than keeping up with daily essentials this year.
- Gallup finds shoppers expect to spend an average of $1,007 on gifts in 2025.
- Nearly 65% are worried about higher prices driven by tariffs and inflation, and 56% say holiday costs stress them out.
For SMBs, these numbers carry three key signals, each pointing to increased opportunity:
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- Gift spending is concentrated and intentional, favouring businesses that feel worth it. Because customers are protecting their gifting budgets even as they cut elsewhere, they are more deliberate about where those gift dollars go. That means small businesses with distinctive products, strong service, or community roots are positioned to capture a higher share of protected spend.
- The emotional weight of purchases can accelerate loyalty. When shoppers are stretching to buy, a positive experience, fair pricing, smooth service, and products that land well with recipients can translate into outsized loyalty and word-of-mouth. For many SMBs, one high-stakes holiday interaction can become the starting point for a long-term customer relationship.
- Customers are unusually open to “better-fit” alternatives. As households re-evaluate every line of their budget, many are actively seeking alternatives to big-box stores, turning to small brands that offer better value or a stronger story. This creates a window for SMBs to be discovered by shoppers deliberately looking for smarter, more personal ways to spend.
“When families treat the gift budget as fixed and everything else as flexible, it shows holiday spending has shifted from discretionary to identity,” says Anirudh Agarwal, CEO of OutreachX. “For small businesses, that’s not just a revenue opportunity, it’s a chance to meet that emotional commitment with fairness, value, and transparency, and earn customers who stay long after the holidays.”
The Final Verdict: Value Wins the Season
Holiday demand in 2025 is not a testament to economic strength; it is a display of consumer prioritization. When 82% of customers protect their gift budget by cutting essentials, the transaction shifts from discretionary spending to identity spending. This creates a rare window where small and medium-sized businesses can earn high-stakes, enduring loyalty.
In a quarter financed by sacrifice, customers are more selective than ever, seeking clear, undeniable value and transparency. The true measure of this holiday season will not be top-line sales, but whether SMBs leveraged this high-stakes opportunity to prove they are worth the consumer’s financial stretch. For small businesses, navigating this shift, where gift costs are prioritized over everyday needs, is the ultimate litmus test for their long-term customer value.