Suzy Davidkhanian (00:05):

Hi, everyone. Today is Wednesday, February 18th. Welcome to EMARKETER's weekly retail show, Reimagining Retail, an EMARKETER podcast. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Suzy Davidkhanian, and on today's episode, we're sharing an early look at our holiday 2026 outlook and what the 2025 season revealed about what comes next. Joining me today are two podcast regulars. Joining from Chicago is Zak Stambor.

Zak Stambor (00:35):

Hi, Suzy.

Suzy Davidkhanian (00:36):

Hey, Zak. And joining us from Texas is Sky Canaves. Hey, Sky.

Sky Canaves (00:40):

Hey, Suzy. Happy to be here.

Suzy Davidkhanian (00:42):

Thanks for coming. This week we're going to talk about the holidays, but through a very different lens. It's mid-February, which is actually when the full picture of the season comes into focus. Returns are in, brands are sharing how the holidays really performed on investor calls, and before we know it, we're going to start planning for the next cycle. As we wrap our 2026 forecast, we're using the '25 holiday season as a signal, not a scorecard, looking at how gift-giving continues to take shape, how channels like social and AI are influencing decisions in moments of high intent, and what retailers should be thinking about in 2026 to win the holiday season. So before we dig into the holidays for 2026, you guys tell me. Did you return a holiday gift this year? And if yes, what was it? Zak? I see you're leaning in.

Zak Stambor (01:29):

Yes, of course I did. My kids took up skiing this winter, and so that required us to buy a whole lot of stuff, ski helmets and goggles and gloves and all that other stuff. And the thing of when you buy all of that stuff is you have to know how it fits, and I bought it online because I wanted to find a good deal, but I didn't know how it fit. And so I misfired several times and had to make many returns.

Suzy Davidkhanian (02:00):

Oh, my gosh. I mean, that's what happens online, right, especially when it's a new-to-you category.

Zak Stambor (02:04):

Oh, 100%. That's the nature of the beast, is you go online to find a deal, but fit is very important. And so it just puts into focus how important it is to give consumers clear signs of how something will fit and who it'll fit.

Sky Canaves (02:20):

But it's so challenging, because especially with kids, because their sizes are changing all the time and different retailers and brands have different sizing, and it's actually I think just become an ingrained habit that we just buy and return what doesn't fit.

Suzy Davidkhanian (02:34):

Sky, did you return anything?

Sky Canaves (02:36):

Oh, yeah. Not a gift for me, but I had to return gifts for others that didn't work out, and I'm embarrassed by how much I return and how much everyone else returns. So I waited until the end of the return window to take everything in at once, and apparently so did everyone else because I couldn't even get into the UPS Store on January 31st, but luckily I had until February 1st or a few days later. And they now open on Sundays, so I was able to get back there the next day when it was empty.

Suzy Davidkhanian (03:05):

Oh, so you had to take it back to a store to mail it back?

Sky Canaves (03:08):

There was drop-off returns, yeah. Not a store, but the UPS Store.

Suzy Davidkhanian (03:13):

A retail outlet. You went to a physical space to return. You guys, I didn't return anything, but then I was thinking about it. Is it because my family gives a lot of gift cards, or is it because my family's so small and they all know everybody and we don't really do ... we do one pink elephant, or white elephant gift. I always get that wrong. Well, returns are in, the holiday dust has settled, so let's do a rapid-fire around, and I'm only going to ask you guys to think of two things that really stood out to you about how people shopped this past holiday season. Sky, I'm going to start with you.

Sky Canaves (03:42):

Sure. So one is not the surprise that holiday shoppers turned up for the big discounts, but that Cyber Five came out strong and actually gained a little bit of share of the overall holiday season spending, whereas it had been losing share since it peaked in 2019, so that was one. And another one was, again, I don't think that consumers increasingly using AI for shopping was a big surprise, but how much they used it in stores as well as for online. I saw some data from a Costa group that said nearly a fifth of shoppers were using AI apps and tools while shopping in physical stores during the holidays this year, which seems pretty significant.

Suzy Davidkhanian (04:21):

Yeah, that is a lot, actually. It's probably through the app as well. Zak, what about you? What are two things?

Zak Stambor (04:27):

Two things, so the first one is BNPL use was up I think about 10% year over year. It hit about $20 billion. On Cyber Monday alone it was over a billion dollars, and it's just a clear sign of the normalization of this payment method, and people are using it for big-ticket items but also smaller-ticket items just to get by, just to ensure that they're buying the gifts that they intend to, so that's one.

(05:01):

And then the other thing was the real downshift in spending in December I thought was pretty interesting. So generally I don't pay any attention to the month-over-month retail sales numbers. The one exception to that is in December, and it was flat. And even if you look year over year, it was up 2.4%, and that's the heart of the holiday season. It was interesting to see that consumers lost steam, and I think there's a whole lot of reasons why. Overall, I think the season was pretty strong or solid, but it was interesting to see that momentum fade.

Suzy Davidkhanian (05:45):

I mean, I don't know if a 2.4 increase is fade, but I definitely think we are seeing a spreading.

Zak Stambor (05:50):

It was a slowdown.

Suzy Davidkhanian (05:50):

A slowdown, yeah. We're seeing a spreading of people spending, and the more deals that one does up front or a retailer does up front, and people are conscientious of their budgets because, me too, one of the things I was surprised about was buy now, pay later. For all the things you said, I'm in full agreement. I did hear at NRF someone starting to talk about save now, buy later, which reminded me of layaway programs, and so I think all these new ways of paying might start mushrooming again.

Sky Canaves (06:19):

Yeah, and I saw in our latest payment trends report, I think one of the trends I've heard about is more people using saved payment or stored payment cards where you're putting your money. It's kind of like you have your cash in your wallet, you have your cash in your app and that's what you spend, so using that as a budgeting tool,

Suzy Davidkhanian (06:39):

Yeah, it's amazing what they're doing. The other thing I found interesting was the number of places in which people converted. So they researched and understood about new products and then converted somewhere completely different, and it was really the whole gamut.

Zak Stambor (06:56):

Yeah. I think people were very invested in doing the research, doing the work, in order to ensure that they got a good deal and that they bought something that met their intention.

Suzy Davidkhanian (07:09):

So that was '25. As we think about and are wrapping up our '26 forecast, Sky, I know you're putting the final touches on your report around the 2026 holiday season. Can you give us a very quick high-level preview of what the numbers are?

Sky Canaves (07:22):

So I think we're in this more muted era for growth, and total holiday retail in '26 will be roughly on par with 2025, which was somewhat slow but not as bad as we initially had expected in the aftermath of the tariff announcement. So it came in around 2.5% for the season for overall. E-commerce was substantially better at above 6%, and we're expecting a similar level this year as well.

Suzy Davidkhanian (07:52):

And so, you guys, what feels fundamentally different about the upcoming holiday season compared to last year or a couple years ago or even pre-COVID?

Zak Stambor (08:00):

Well, I think last year so much was up in the air. There was the tariff announcements, the tariff pullbacks, all of that stuff, all that noise that I don't think people really understood. They just had a sense that things were tumultuous, and so I think it affected the way in which they spent and they thought about spending, and I think this year perhaps it will be more settled. We will have a Supreme Court decision on the tariffs. We will have the presumably larger tax refunds for at least a sizable segment of consumers, and so things will likely be just a little bit less uncertain.

Sky Canaves (08:47):

I think for retailers, a big challenge, and brands, is just managing the shifts in channels both for commerce and for marketing, because there's so much more complexity now, not just online but in physical as well, and connecting the two. So now we see even a couple of years ago, I think department stores were much bigger than they were now, and now the department store footprints are shrinking, and the growth in physical is coming from off-price and clubs and even pop-ups and more standout store experiences.

(09:20):

And then online, we see new channels like CTV for marketing, social for both marketing and selling, and understanding consumer behavior across these channels and with second-screen behavior, and how they're bringing their phones into stores and using them to shop while they're in store. So I think all of that just adds to the complexity and how much more retailers need to plan and stay agile to meet shifting consumer behavior across these channels.

Suzy Davidkhanian (09:51):

Right, and I'm going to throw in this idea around it's not just about promotions and coupons to really understand value, and then during the holidays, especially right now when there are mixed headlines around the economy, it's this idea of needing to trade down to stay within your budget, but then there's also this tension about giving the right gift, and you guys talked about it up front around your returns and there were so many returns that happened. I think that too is something that's completely different from many years ago.

Zak Stambor (10:18):

Yeah. No, I think that's dead on. I mean, value goes far beyond price, and there are so many different ways that retailers can pull the value lever. And that can be leaning on their loyalty programs, it can be offering bundles, it can be offering exclusive bundles with exclusive merchandise. It can be all sorts of different things, and at a time when margins are being pressed, retailers should look for those different ways to communicate value without leaning so heavily on discounts.

Suzy Davidkhanian (10:52):

Right, and I think especially when it's this gift-giving moment, and so understanding what that looks like and that tension about the right gift for someone else without feeling like you are really trading down a lot. When I was working in retail, at a department store, actually, we talked a lot about self-gifting over gift-giving over the holidays and really trying to understand that difference. It's the only time in the retail calendar where you're really trying to find the perfect gift for someone else, and you're probably sneaking in a couple of things into the cart for yourself.

(11:25):

And this is a moment, I think another differentiation for '26 and beyond, where AI is really everywhere, and we have data and we have personalization and everyone is thinking about how do you scale personalization, but it feels different over the holidays. What does that actually look like when there is a mixture of intentions that are happening?

Sky Canaves (11:45):

I think for most brands and retailers, it's still very much a work in progress, and getting to personalization at scale really has to start with understanding the customer journey across the different channels, and then being able to pull the data from all those channels and integrate it to figure out what's next in terms of the best message or offer experience for the customer that's going to meet their definition of value. And those definitions of value change according to time and place, and during the holidays as well.

Zak Stambor (12:15):

And calibrating that is just so tricky, because like you said just a few moments ago though, the ways in which consumers shop is so diverse, and the messages that resonate differ based on the consumer. And so it just really is a challenge, and I think will forever be a work in progress.

Suzy Davidkhanian (12:39):

Right. It's like the customer who you're targeting, but there's a little bit of a missed confidence because you don't know who they're purchasing for. And so you're just trying your best as a retailer to not be creepy but not be generic, and to try and hope that you have a good messaging that's not a blanketed message.

Sky Canaves (12:58):

This is where the apps and AI shopping assistants come in really handy, because then shoppers can have conversations about what they're looking for, who they're looking for, and make it very clear what their intent and who the purchase is going to be for, as opposed to, yes, guessing, if you're looking for ski pants for a ten-year-old boy, whether that's for your own son or someone else, or just randomly looking around.

Zak Stambor (13:24):

And I think Rufus in particular has gotten a lot of people accustomed to having those sorts of dialogues, which other retailers can benefit from just by Amazon establishing and building that behavior.

Suzy Davidkhanian (13:39):

Let's talk about that for a second. The AI tools, whether they're AI-native tools to a retailer or LLMs in general, they really are helping narrow choices, and a lot of brands in '25 said AI really helped drive meaningful holiday sales, whatever that means to them. It's different for everybody. Is there a way to think about these different types of tools as a retailer for '26, and where and when do you lean into one versus the other? And by differences I mean the AI-native to a platform tools like Rufus, versus the ChatGPT/marketplace feel.

Sky Canaves (14:16):

I think they're both important. The native AI tools really will matter to retailers because, as you noted, there's going to be that kind of behavior shaping with a big player like Amazon where that's going to become the expectation. So if Amazon is offering this superior customer experience through Rufus and making it very easy to shop and find products, then other retailers will have to keep up with similar offerings. And those native AI tools can be trained on the retailer's first-party data that the retailer has access to, and help to reduce the friction points in shopping that they're aware of and maybe increase conversions, reduce cart abandonment rates, so that's really important.

(14:59):

Then on the other side, in integrating or becoming more visible on the third-party AI platforms like ChatGPT or Gemini, I think that becomes more of an imperative for retailers as well and brands to focus on, because right now it's a space where Amazon is absent from. And there aren't a lot of e-commerce opportunities for growth outside of Amazon or a handful of other big retailers, so they want to be present in those conversations. We're seeing that the referral traffic is a small share of retailer and brand traffic, but it's growing very rapidly, and that AI referral traffic is reportedly converting a lot better, maybe because those shoppers have already done a lot of their research and consideration before getting to the retailer via an AI platform.

Zak Stambor (15:48):

The only thing I would add, because I think Sky put it very well, I think she really did, is that now is the time to test, learn and iterate, because like Sky said, Amazon isn't there. So you have an opportunity to make headway and start building a channel that you likely won't have in a year or two, because Amazon is not going to be absent over the long term.

Suzy Davidkhanian (16:16):

Right, and it's a great point to test and learn now, because there are so many much, much smaller-volume gift-giving holidays coming up. We just passed Valentine's Day. There will be plenty more that are universal, if you will. A great time for retailers to learn, and the more retailers roll this out, the more normalized it'll be. But at the same time, like you both pointed out, people are shopping across all different channels in all different tools, and LLMs can send you to social.

(16:48):

And so we can't talk about the holidays without talking about social, whether it's TikTok Shop, that did phenomenally well in 2025, and you can't be in the game if you're not on social, where the lines between inspiration and finding the perfect gift mix together, especially when you think about creators and then you can find gifts to give with confidence. What stood out to you both the most when it came to TikTok Shop for '25, and how should retailers be leaning into that for '26?

Sky Canaves (17:17):

So I think one is the increasing presence of large and established brands on TikTok Shop. I think as 2025 progressed and the threat of TikTok being banned in the U.S. faded, some of the retailers or brands that had been waiting out and holding out finally seized on the holiday opportunity, because there's just so much attention on TikTok as a platform for discovery and now for the full-funnel commerce as we get into the holidays.

(17:47):

So we saw some really creative campaigns and activations as well, moving more into live streaming, which has been a very slow burn in the U.S., but with TikTok Shop is gaining more attraction. Like Kim Kardashian's SKIMS, she did a live stream to promote that brand that was very highly produced. So I think now that TikTok has a new ownership structure in the U.S. and is definitely here to stay, that we'll see even more interest in the platform.

Suzy Davidkhanian (18:16):

And it seems like TikTok's ... I mean, we're not really hearing about it as much anymore, "Made me buy it." Remember that tagline, "TikTok made me buy it," which is the, "As seen on TV," tagline from when I was growing up. It feels like that also gave a lot of trust to some of these creators and some of these products and gives you, if you think back to the holidays, it's a gift-giving occasion and you're trying to minimize tension. And so perhaps this also helps with building trust and confidence in the product.

Zak Stambor (18:42):

I think it's trust, confidence, and also just building the habit, building the behavior of looking to TikTok as a place to get inspiration and make the purchase. It's just these things take time to establish themselves as a habit, and I think it is so clear that that happened last year. I mean, the numbers were crazy. During the four days from Black Friday to Cyber Monday, US GMV on TikTok Shop was $500 million. That's a crazy number, but the other thing that I thought was equally crazy was that there was a 50% increase in buyers. And so there are so many more people looking to the platform and purchasing on the platform than there were just a year earlier, and that's only going to grow.

Suzy Davidkhanian (19:39):

Right.

Sky Canaves (19:39):

Yeah, because it's still a very new platform. This was only its third holiday season, and really only its second, I would say, because the first one, it had just launched a few months earlier.

Suzy Davidkhanian (19:51):

And still in terms of market share, that's the thing, right? Yes, of course Amazon has the giant market share, Walmart. Together they make up a ... I don't know, is it 60-something percent right now overall, not during the holidays. This is where all the brands can really shine, especially during the holidays, where Amazon's not always the number one place people go for gift-giving, and TikTok Shop is really gaining momentum.

(20:15):

As we think about 2026, I want us to zoom out and I want you to each give me one big thing, hopefully something new that we haven't really talked about, or lean into something we've already talked about, around winning the holidays. What does that actually mean for 2026? What should a brand be doing to lean into and win the holidays? Sky, you look like you're ready to go.

Sky Canaves (20:35):

So I'm thinking about all of these new AI partnerships and announcements that came out kind of back to back during this holiday season, and even spilling over into the new year with Google's announcement of its Universal Commerce Protocol and all the partners that it's got on board with it. All of this is so nascent, but we expect it to be a little more mature by the time we get to the holiday season, and there will be some winners and losers and a bit of a shakeout within the AI commerce space.

(21:08):

So I think that's one that brands and retailers really have to pay attention to, is what are their best opportunities within this new commerce channel. Is it going to be Google? Is it going to be ChatGPT? I think there will be some glitches along the way, and then looking at how the shopping experience evolves within the big retailer apps. With Amazon's heavy investment in Rufus, how much of Amazon shopping is going to shift from the search bar to Rufus conversations? And it's part of a broader behavioral change from search to conversation that's also taking place in Google.

Suzy Davidkhanian (21:45):

So lean into AI.

Sky Canaves (21:45):

Absolutely.

Suzy Davidkhanian (21:46):

It's really important, yeah. What about you, Zak?

Zak Stambor (21:48):

So I have been thinking a lot about physical. The omnichannel retailers can use their advantages over the holidays in several different ways. There's just the pure omnichannel pieces, so they can offer last-minute shopping, pickup, the easy exchanges, same-day inventory visibility, those nuts and bolts, but also the experience of the store. Differentiating what they offer by just providing something different and distinct from other retailers out there and using that to their advantage, which I feel like some retailers do well, but a lot of retailers just miss the mark there and don't seize on that opportunity.

Suzy Davidkhanian (22:33):

I mean, I'm a firm believer in the store. It's 80% of sales. I'm wholeheartedly with you. I'm just throwing in one more thing, which is you touched on it, but I would say as everybody and as we fully believe everybody is everywhere from the consumer lens, they're expecting a holistic experience, but don't forget about all that operational backend stuff, right? People buy online, they want to pick up in store. All of that is not necessarily a shiny penny for 2026, but it's critical. Otherwise, you start to erode trust, and then people will go to another brand.

Zak Stambor (23:07):

Absolutely.

Suzy Davidkhanian (23:08):

That's all the time we have for today. I feel like we could keep talking about this, and we'll have to put in another episode around returns. Thank you, Sky.

Sky Canaves (23:14):

Thanks, Suzy.

Suzy Davidkhanian (23:15):

And thank you, Zak.

Zak Stambor (23:16):

Yeah, thanks for having me.

Suzy Davidkhanian (23:18):

And thanks to our listeners and to our team that edits the podcast. Please leave a rating or review and remember to subscribe. I'll see you for more Reimagining Retail next Wednesday, and on Friday, join Marcus for another episode of Behind the Numbers, an EMARKETER podcast.