According to a new report from market research firm The NPD Group, more than 8 in 10 consumers plan to rethink or even reduce their spending on products in the next three to six months.
“There is a tug of war between the consumer’s desire to buy what they want and the need to make concessions based on the higher prices hitting their wallet,” said Marshal Cohen, chief industry adviser to retail for NPD.
When store prices continue to rise, consumer behavior experts say many shoppers make three changes: they buy or opt for cheaper alternatives. They usually stop spending on non-essentials, like eating out. But they indulge in small pleasures like flowers and candles.
Grocery stores are designed to entice shoppers to throw in a pack of chewing gum or a toy car on their weekly run for food and household items. But that doesn’t happen as much in times of inflation.
General merchandise stores like Walmart are feeling the slump as households shop less and shop less with each trip, Cohen said.
NPD data shows consumers were already making fewer general merchandise purchases in the first quarter of 2022 compared to the same period a year ago. Consumers purchased 6% fewer items from general merchandise stores in the first quarter of this year compared to a year ago, and the frequency with which they shopped also fell 5% over the of the quarter compared to a year ago.
Even discount stores like so-called $1 retailers (many of which are now actually $1.25 stores) are noticing that their very wallet-conscious shoppers are feeling pressured by inflationary “headwinds.”
“We have also seen an acceleration in our private label business in recent weeks. This is a real sign that [the customer] starting to feel the pressure,” Dollar General CEO Todd Vasos said on the call.
Cohen noted another change for low-income customers that fuels the shift: They’ve had more discretionary spending during the pandemic due to government stimulus. Now that has changed drastically and they need to adjust their buying behavior.”
Ditch the big purchases, but stick to small feel-good extras
Consumers will continue to cut spending this year, Cohen said, by cutting restaurant meals, gym memberships and services such as frequent manicures.
“With fine dining, we may not be able to 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 else will consumers stop buying? Pretty much anything acquired during the pandemic that doesn’t need to be upgraded or replenished.
For example, “many of us bought an air fryer because we cooked at home frequently. You don’t need another one. Same thing with TVs,” Cohen said.
Yet amidst all this austerity, there’s a bit of a paradox in which consumers are willing to spend on a category that’s decidedly not essential: light pick-me-ups.
Such discretionary purchases are subjective both personally and financially, said Chuck Howard, assistant professor of marketing at Texas A&M’s Mays Business School.
For some people, it may be possible to splurge on a favorite flavor, and for others, it may mean grabbing a chocolate bar at checkout. The common theme is that this is a temporary reprieve during a time of uncertainty.
“It might be nice to take a 20-minute bath with your favorite products at the end of a long day, when you’re constantly worrying about how you’ll handle all your bills three months from now,” Howard said.
This could explain why sales of products like home fragrances and candles are holding up reasonably well.
Executives of Bath & Body Works, a seller of scented soaps, body sprays and cleansers as well as candles, described the products as “affordable luxury” on a recent call, adding that customers continue to savor supply: in air fresheners were higher last quarter compared to a year ago.
It’s called the lipstick effect, when consumers spend on small luxuries like perfume or high-end beauty products, even in downturns, said Priya Raghubir, professor of marketing at NYU Stern School of Business.
She expects spending on larger indulgences to continue in the near term as well.
“The difference with this inflationary cycle is that we are coming out of a pandemic. People have a lot of pent up needs. They have been dreaming of vacations for over two years, celebrating life events with family and friends,” said Raghubir. “There won’t be such a slowdown in travel and leisure.”
But those indulgences could also mean shoppers are giving up on something else, said Neil Saunders, retail analyst and managing director of GlobalData Retail.
“Fundamentally, it’s an environment where people have to make choices,” he added. “If they buy one thing, they may not be able to buy another.
This forced selection when at the store could continue, and even deepen, he added.
“We’re still in the early stages of inflation,” Saunders said. “If higher prices persist longer, the changes will become more pronounced – spending will be cut further and faster.”