New York (CNN Business) – Prices are rising for just about everything, forcing millions of Americans to make increasingly difficult decisions.
More than 8 in 10 consumers plan to rethink or even cut back on product spending in the next three to six months, according to a new report from market research firm The NPD Group.
“There is a tug of war between consumers’ desire to buy what they want and the need to make concessions due to price hikes affecting their wallets,” said Marshall Cohen, NPD’s senior advisor to the retail sector.
Switch to cheaper products, buy less
When store prices continue to rise, consumer behavior experts say many shoppers are making three changes: they buy or switch to cheaper alternatives; They stop spending on unnecessary things like eating out at restaurants, but indulge in small pleasures like flowers and candles.
What’s more, when they go to the supermarket for these important ones, Cohen says shoppers not only buy less overall, but also make fewer “impulsive purchases.”
Supermarkets are designed to entice shoppers to grab a box of gum or a toy car during weekly grocery and home delivery. But this does not happen often in times of inflation.
Cohen said general merchandise stores like Walmart are experiencing a crisis as families buy less with each trip to the store.
NPD data shows that consumers were actually making fewer purchases of general merchandise in the first quarter of 2022 than in the same period the previous year. Consumers bought 6% fewer merchandise at general merchandise stores in the first quarter of this year than a year ago, and the number of times they shopped decreased 5% in the quarter compared to last year.
Walmart revealed in its latest earnings release last month that inflation has shifted the buying patterns of its customers, who opted for cheaper brand-name dairy and meat products, bought fewer items per trip to the store, and moved away from optional items.
Rival Target painted a similar picture during its recent earnings call, saying shoppers are holding back on non-essential purchases of homeware, furniture, televisions and appliances.
Even discount stores, such as the so-called $1 stores (many of them are now $1.25), report that wallet-conscious shoppers are feeling pressured by the “headwind” of inflation.
Dollar General said in its latest earnings call that customers are shopping “more deliberately” in its stores, turning to lower-priced products.
“We have seen an acceleration in our own brand business in recent weeks as well. This is a true sign of that [el cliente] “He’s starting to feel the pressure,” Dollar General CEO Todd Vasos said during the call.
Cohen pointed to another change for low-income clients driving the change: During the pandemic they had more discretionary spending thanks to government stimulus. Now that has changed dramatically and they have to adjust their buying behaviour.
Ditch the big purchases, keep a few extras to feel good
Consumers will continue to cut back on their spending this year, according to Cohen, to cut back on dining out, gym memberships and services like frequent manicures.
“In terms of gourmet restaurants, we may not return to pre-pandemic levels until 2025,” Cohen said. “We won’t go out as much, and when we do, we’ll pay more.”
What will consumers stop buying? Pretty much anything bought during a pandemic that doesn’t need updating or refurbishment.
For example, “A lot of us bought an air fryer because we often cook at home. They don’t need one. The same goes for televisions,” says Cohen.
However, amid all that austerity, there is something of a paradox as consumers want to spend in a decidedly unnecessary category: little things that lift your spirits.
These discretionary purchases are subjective on both a personal and financial level, says Chuck Howard, associate professor of marketing at Texas A&M Mays School of Business.
For some people, it may be possible to splurge on a little favorite fragrance, and for others, it may be possible to grab a piece of candy when you go out. The common theme is that it is a temporary respite during a period of uncertainty.
“It can be a good idea to take a 20-minute bath with your favorite products at the end of a long day, when you’re always worried about how to pay off all your bills in three months,” Howard says.
This may be why sales of products such as home fragrances and candles stand up reasonably well.
CEOs of Bath & Body Works, which sells scented soaps, spray Underwear and candles called these products “affordable luxury” in a recent call, adding that customers still stocked:
Sales of soap and air fresheners increased in the fourth quarter compared to the previous year.
This is the so-called “lipstick effect,” which occurs when consumers spend on small luxuries, such as perfumes or high-end beauty products, even in times of crisis, according to Priya Ragbeer, professor of marketing at the Stern School of Business. …from New York University.
Spending on some major luxuries is expected to continue in the short term as well.
“The difference with this inflationary cycle is that we are coming out of a pandemic,” Ragbeer says. “People have many pent-up needs. They’ve been dreaming of a vacation for over two years, to celebrate life’s events with family and friends.” “There will be no significant reduction in travel and leisure.”
That indulgence could also mean shoppers are giving up on something else, said Neil Saunders, retail analyst and managing director at GlobalData Retail.
“This is an environment in which people have to choose,” he added. “If they buy one thing, they may not be able to buy another. And this forced selection in the store can persist, and may even deepen.”
“We are still in the early stages of inflation,” Saunders said. “If higher prices persist longer, the changes will be more visible: spending will be cut faster and faster.”