The Department of Labor reported a continued rise in the consumer price index rose 0.8% in February alone – 7.9% year-over-year – and consumers took notice, showing signs of concern over the prices of “common and everyday goods”, such as previously reported by WWD.
The state of consumer behavior has proven incredibly susceptible to change throughout the pandemic, so what does this rising inflation mean for how people will shop in the months ahead? Two recent reports have highlighted buyer sentiment, and the picture is not bright.
According to the EY US Future Consumer Index, half of US consumers say the rising cost of goods and services makes it difficult to buy certain things. When asked about the most important buying criteria right now, 58% of respondents cited price, while 64% said price would be the most important buying criteria over the next three years.
And in a separate report from Affirm, the payment solutions network, which surveyed 1,740 consumers to understand how inflation is affecting their spending habits, 66% of U.S. consumers fear rising costs will keep them from paying. for the things and experiences they had planned. for the year. For Millennials and Gen Z, the number was 73%.
Examining current perceptions, the EY survey found that the single factor that outweighed price as an important consideration when making a buying decision was availability at just 2% more than the price – a lingering impact of the pandemic as well as supply chain issues.
“Consumers are telling us that with essential items, they’re still willing to pay that higher price,” said Jeff Orschell, head of retail at EY Americas. “They know inflation has pushed those prices up, they know it’s probably going to go up again, but they’re still focused on [availability]. Things like gasoline, fresh food, or packaged food are the ones that have been insulated from inflation from what we’re hearing.
When it comes to price sensitivity, EY’s consumer research found that petrol, fresh food and packaged food are less likely to experience a shift in how consumers shop compared to enjoyable categories. to have. In fact, Orschell said if consumers prepare for higher prices, they will continue to pay them. Sixty-five percent of consumers say they haven’t changed the way they consume gas and 59% said fresh food is still important.
“These non-essentials are the ones taking the lead right now,” Orschell said. “Clothing is a big deal – 38% of consumers say they are buying less clothes and 29% say they are buying fewer beauty products. A third of consumers said they are also buying less electronics General public.
Alcohol stood out in the nice-to-have category. Historically considered immune to economic hardship, 27% of US consumers said they bought fewer alcoholic beverages as prices continued to rise.
One area consumers are struggling with seems to be planning to pay for experiences where they take notice of rising prices (partly due to rising gas prices having more of an impact than the immediate need fill a car’s gas tank) conflicting with the desire to travel and plan activities after spending the majority of the past two years in pandemic lockdown.
“At the height of the pandemic, when we were in lockdown and before the vaccine came out, experiences were a small part or the smallest part of consumer spending,” Orschell said. “Now look what we got in February, the affordability mindset was the top bucket at 25% of the population and just behind at 24%. People are at the point now where they’re saying, ‘I’ve had enough, I’m done with the pandemic and I want to get out and experience life, eat out, go on vacation’, and so it bounced back there -high, but affordability is still the best bucket.
Closely following the affordability mindset and the experience mindset in EY’s findings was a planet-focused mindset at 21% – an increase for United States
With a heightened priority for sustainability in mind, despite inflationary costs, 40% of consumers said they would only buy brands that align with values, even if that means switching brands whom they know and whom they trust. This finding was true for 53% of Millennials, 46% of Gen Z, and 26% of Baby Boomers.
For businesses in direct contact with consumers, Orschell said the best course of action is to take short- to medium-term measures to mitigate the impact of inflation by exercising pricing power, protecting margins and investing in productivity gains.
“For retailers, I think they need to be aware that this has a significant impact on how consumers decide what to buy and where to buy it,” Orschell said. “What retailers need to think about is that if they have a private label, now is the perfect time to start promoting their private labels; we have seen an increase in consumers’ desire to be willing to buy private label. I will just say that it’s just about continuing to narrow the range, looking for ways to be more efficient, looking for ways to reduce inventory levels, looking for ways to ensure that their partners meet their obligations, and if they don’t, they hold them accountable.
Continuing to tighten and ship definitely applies to clothing, he said. This involves ensuring physical stores are used effectively as channels as brands become more profitable.
Finally, Orschell said companies need to continue to look at supply chains. “We have found that the supply chain we have built over the past decades is simply not resilient and this has been proven time and time again over the past 24 months. It’s going to take a while to fix this, but the long lead times, huge order quantities, trying to figure out what you and I want to buy in 12 to 18 months, everybody’s been thinking about the how they can shorten that supply chain. And it’s like a global sense, it’s not just an American thing.
Overall, looking at consumer sentiment in the United States, Orschell said it could be described as “cautious.”
“Everyone is excited that we’re getting our freedoms back and it looks like we’re getting to the point where hopefully COVID-19 will be in a rear view mirror,” Orschell said. There’s a bit of optimism there, but when it comes to affordability, they’re all there. Data shows they are struggling, leading to this caution. Will this turn into passive pessimism? I do not know. But I think it’s something we need to watch and if we get more reports on inflation than we’ve had recently, I would predict it will get even worse.
In the Affirm report, Silvija Martincevic, Affirm’s chief commercial officer, said that whether consumers were “shopping for the best price on a new kitchen appliance, or taking what was left over to save for a rainy day, one thing is unmistakable: Americans are feeling the impact of inflation as prices continue to rise.
In response to growing financial stress, 53% of Millennials and Gen Z said they plan to spend less and 21% said they will make investments using tax refunds this year. This contrasts with 81% of Gen Xers and Baby Boomers who told Affirm they plan to spend the same or more during inflation. Only 14% said they would invest their tax refunds.
Anxious to save money, consumers said they would make an effort to stay home. For 38%, this means prioritizing purchases for the home. More than half (53%) of consumers said they would deprioritize dining out, while 47% said they would deprioritize entertainment and 34% said they would deprioritize beauty as a spending category .
Meanwhile, when asked about flexible payment options for budgeting, 23% of consumers said they would likely use a buy now, pay later option as Affirm in the next month due to rising prices . At 41%, Millennials and Gen Z were almost twice as likely as consumers overall to choose to use BNPL due to inflation.
Notably, Affirm’s recent spending report also revealed that more than half of consumers are interested in using payment solutions over time this year. “At a time when many things are beyond our control, Affirm’s products are designed to restore some of that control, empowering consumers to responsibly pay overtime and thereby increase their purchasing power. “, said Martincevic. “In doing so, we help consumers get the items they need, in a way that fits their budget.”
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