Small businesses set to capture a record $118 billion this holiday season, even as a widening K-shaped economy splits spending trends across income brackets

New Intuit QuickBooks data projects total holiday spending to reach $278 billion, as American consumers make room for their “joy budgets,” despite rising costs.

As the holiday season kicks off, it’s clear that not every consumer is shopping from the same financial footing. The defining reality of 2026 is a dynamic K-shaped economy playing out in real time, named for the diverging paths of higher- and lower-income consumers, in which one group pulls ahead financially while the other falls behind. While higher earners navigate rising costs with flexibility, lower earners and younger generations are making more intentional decisions to buy gifts for family and loved ones this season.

But one common thread across consumers is their intention to shop Main Street, as an overwhelming number (89%) agree that supporting small businesses is important this season, according to new research from the 2026 Intuit QuickBooks Holiday Shopping Survey. The findings reveal that total consumer holiday spending is projected to reach $278 billion, a $15 billion increase from 2025, with a record $118 billion expected to go directly to small businesses. 

“Our findings show that consumer holiday spending is projected to increase again this year, despite continued anxieties among shoppers and small businesses alike around inflation,” said Simon Worsfold, head of Data Communications, Intuit QuickBooks. “However, consumers aren’t retreating from the holidays. They are being intentional about where their money creates the most meaning, and for many, that’s shopping small. We’re now seeing small businesses lean into this connection, making a deliberate choice to absorb higher costs, rather than pass them on to their most loyal shoppers, and leveraging AI tools to effectively reach these customers. These insights illustrate how this holiday season will be one not solely won on discounts alone. It will be won on relationships and building meaningful shopping experiences."

This interest in shopping small builds on a steady, three-year trajectory of rising consumer investment, with today’s shoppers planning to spend 55% more at small businesses than reported in 2024, illustrating how small businesses are consistently growing their share of total holiday spending each year. This upward trend is encouraging optimism as small businesses head into this holiday season, with 76% expecting to generate more revenue than last year, marking the highest level of confidence across the last few years. 

Spirits are high among consumers as well. Despite rising costs and continued economic pressures, consumers are actively protecting a dedicated “joy budget,” prioritizing spending that brings real personal meaning during the holidays. However, approaches to conserving this joy budget looks different across generations and household incomes. 

Consumers show resilience across the K-shaped economy

As consumers prepare to increase holiday spending at nearly 6% more in total compared to 2025, many are still bracing for the financial impact, as 63% are at least somewhat concerned that higher costs will affect their shopping. As a result, consumers are being intentional about where their money goes, with 53% expecting to cut discretionary spending in categories such as dining out and travel, or spending on essentials like groceries and utilities in order to protect their holiday joy budget.

However, depending on age and income, consumers are adopting distinctly different money management strategies, reflecting the widening financial divide across generations and household income brackets:

• Budgeting strictness and income disparities: Strict budgeting is far more prevalent among lower-income shoppers (30%), of which, 40% plan to cut discretionary spending, versus higher-income shoppers (12%), who retain greater spending flexibility as only 26% plan to cut their discretionary spend.
• Payment flexibility and Buy Now, Pay Later: Gen Z and lower-income shoppers are more likely to leverage Buy Now, Pay Later options to manage expenses and spread out payments compared to higher-income earners. Lower-income shoppers are also much more likely to use debit cards (63%) than upper income households (35%), who overwhelmingly plan to use credit cards for their holiday shopping (67%), which they pay off in full each month.
• Values-driven purchasing: Younger and lower-income shoppers are also the most likely to say giving to family and loved ones matters more to them this year than in years past. Gen Z (58%) and lower-income shoppers (53%) also plan to direct more than half of their total holiday spend to small businesses, suggesting that this is a values-driven choice.

“Our younger and budget-conscious customers still value the experience, expertise, and community they receive from shopping locally,” said Victoria Beaty, founder and owner of Indianapolis plant shop and community space, The Botanical Bar. “We maintain products at different price points so someone can purchase an affordable plant, plant-care item, or small gift without feeling excluded.” 

While overall, more consumers plan to shop small, deal-seeking is still common, as nearly 70% of shoppers who have concerns about higher costs say they'll seek out discounts. But far fewer are setting a strict budget (29%) or buying cheaper gifts (37%) outright. In other words, looking for a good deal and staying loyal to a small business aren't mutually exclusive. Shoppers want value, but they're not abandoning quality for cost. Survey findings from the last two years reveal the three top reasons why shoppers continue to shop small year after year: the ability to find unique, higher quality gifts, the desire to support their local community, and the superior customer service and expertise they receive. This consistent trend underscores why consumers continue to prioritize small businesses and experiences when deciding how to spend their joy budgets.

“As a small brand, we’re able to make the customer experience feel personal year-round. During the holidays, that means creating thoughtful kits and finding ways to make traditionally functional products feel fun and giftable,” shared Stacy Bernstein, co-founder of LA-based first aid and functional skincare brand, All Better Co. “We also stay closely connected to our community through email and social, so that founder-led experience is always at the heart of what we do.”

Small businesses beat cost pressures

The steady stream of consumer desire to shop small over the last several years is encouraging small businesses to enter the season with confidence and optimism. But many have still been challenged to make adjustments to get ahead of external cost pressures such as tariffs, with nearly half (48%) reporting they bought extra inventory in anticipation of increased rates going into effect. However, general anxieties have slowly eased over the last two years, with 29% sharing tariffs haven’t affected them at all, up six percent from 2025. 

As anxiety around these economic factors begins to level out, small businesses are steadily moving toward choosing customer trust over quick margins. Only 38% have raised or plan to raise prices, while 43% remain hesitant to pass higher costs onto customers. This strategy is supported by a few key trends:

• 2025 provided a strong foundation: More than 90% of small business owners say last year's holiday revenue met or exceeded their expectations, and 76% expect to generate more revenue than last year, a 17% increase year-over-year.
• Stability is increasing: Despite the stakes, the share of small businesses saying this year's holiday sales are "very" or "critically" important has actually decreased slightly (12%), a sign of growing stability.
• The competitive landscape is leveling out: Small businesses are also gaining confidence, with 40% saying they don't see big retailers as competition during the holidays, up from 33% in 2025.

“Rising supplier, product, and shipping costs have affected the business this year,” shared Beaty. “We have made selective price increases where necessary, but we have avoided applying increases across the entire store. Maintaining a variety of accessible price points remains important because we do not want plant ownership or thoughtful gifting to feel out of reach.”

AI as a small business equalizer

AI adoption among small businesses has reached a steady state, with 76% planning to use AI in their operations during the holidays. This year, we’re not just seeing small businesses use AI to help save time or streamline tasks, but also to get strategic in how they can directly reach consumers. Nearly half of small businesses (46%) have invested in optimizing their discoverability for AI-powered search and shopping tools, a tactic that pairs nicely with consumer behavior, as shoppers report they plan to use AI tools primarily for bargain hunting, gift recommendations, and price comparisons. Aligning business AI applications, such as personalized marketing and AI-driven search, with consumer discovery habits represents a major growth opportunity for small businesses.

“We’re looking more closely at how our product information, educational content, and brand positioning show up not just in traditional search, but in AI-powered discovery,” said All Better Co. Co-Founder Merav Goldman. “For a small brand, that feels like an exciting opportunity because consumers can increasingly discover the product that best fits what they’re looking for rather than defaulting to the biggest name in the category.”

New data from Intuit Mailchimp’s Breaking Through Peak Season Noise report also highlights the tangible impact of these strategies: Campaigns incorporating generative AI features saw a 50% higher order rate and a 33% higher conversion rate during peak holiday shopping periods in 2025.

Where the marketing dollars are going

AI isn’t the only area where small businesses are shifting their strategy. They're also rethinking their marketing playbook based on what worked (and what didn't) last season. More than half (53%) say they plan to market differently this year based on their 2025 holiday season performance.

Where they're focusing that shift is telling. Selling through third-party e-commerce platforms and owned websites is down by 12% and 17%, respectively, year-over-year, while social media has remained a top-performing channel for three years running, as more than half of small businesses have consistently prioritized these channels for selling their products and services. This meets the demand of nearly a quarter (23%) of shoppers who say they're most likely to buy from a small business this year via social media storefronts, up from 20% in 2025 and 16% in 2024.

The strategy of reaching shoppers where they are also proves effective when it comes to communicating targeted messaging, especially during peak holiday moments. Mailchimp research indicates that smarter timing, targeting, and channel strategy are key tactics for supporting holiday conversion. Mailchimp customers with connected e-commerce stores drove $1.1 billion in revenue last year between October 31 and December 31 through SMS and email marketing. Small businesses are strategizing around this revenue driving opportunity and pairing it with their use of AI tools, as the QuickBooks survey data found that email and SMS marketing campaigns rank as the top use case of AI among small businesses this season. 

Heading into the 2026 holiday season, success won't come down to discounts; it will come down to understanding customers. With clear generational and income-based divides shaping how consumers spend, merchants that lean into connection, absorb costs where they can, and use tools like AI to deliver personalized marketing and flexible payment options will be best positioned to earn a share of this year's $118 billion in projected small business spend. 

To learn more about how businesses can optimize their holiday sales and implement the right tools to help their business grow and thrive, visit our holiday season hub.

Methodology 

Small business survey

Intuit QuickBooks commissioned an online survey, fielded in August 2026 through Dynata, of 1,002 U.S. small business owners, managers, and decision-makers at businesses with 0–99 employees. The sample included business owners (62%), self-employed or independent contractors (20%), and non-owner managers or decision-makers (18%).

Consumer survey

Intuit QuickBooks commissioned an online survey, fielded in August 2026 through Pollfish, of 6,000 U.S. consumers (age 18+) planning to participate in the 2026 holiday season in some way.

To ensure the findings are as representative as possible, survey results have been re-weighted using post-stratification. Percentages have been rounded to the nearest whole number, so values shown in charts and graphics may not add up to 100%. Responses to multiple-choice survey questions are shown as a percentage of the number of respondents, not the total number of responses, so will always sum to more than 100%. Responses were collected using audience pools and partner networks with double opt-ins and random device engagement sampling to ensure accurate targeting and high-quality results. Respondents received remuneration.

Intuit Mailchimp Breaking Through Peak Season Noise Report

Metrics from Intuit Mailchimp’s Breaking Through Peak Season Noise are based on internal aggregate global data of active Mailchimp free and paid plan users evaluated across two primary observation windows: Peak Season 2025 (October 31, 2025, to December 31, 2025) and Black Friday Cyber Monday (BFCM) 2025 (November 28, 2025, to December 1, 2025).