Inflation is finally beginning to slow, but subtle changes in how Americans shop may be sending signals that the relief won’t be enough to alleviate the strain on their finances this holiday season.
While economists have mostly focused on shoppers switching to store brands or cutting spending on non-essential items like recreational activities and home furnishings, a closer look at how consumers shop reveals that many of them are no longer just trying to save money, but are living paycheck to paycheck. According to a monthly LendingClub report, 63% of Americans were living this way in November. This is an increase from 60% in October and close to the year’s high of 64% in March.
Even though inflation has slowed to 7.1% in the year to November from a 40-year high of 9.1% in June, Americans are already feeling the strain. According to data, more people are timing their purchases around their paychecks, possibly leaving their children wanting more this holiday season.
According to Marshal Cohen, chief retail industry adviser for analytics firm NPD, the economy has moved away from a period when shoppers could buy whatever they wanted.
“The rising cost of living is now leaving its imprint.”
Shopping trips, but more frequently
Gas stations and grocery stores can provide insight into consumer behaviour. The more cash-strapped consumers are, the more frequently they will visit gas stations and grocery stores.
Instead of filling up the tank, they’ll go more frequently and time their purchases around when they get paid, Synchrony Financial’s chief financial officer, Brian Wenzel, said recently at a Goldman Sachs investor conference.
The same can be said for grocery shopping. At the start of the summer, when inflation was approaching a 40-year high, Walmart executives mentioned in an earnings conference call that some customers were switching from full gallons of milk to half gallons because they couldn’t afford to absorb soaring food prices. Those shopping habits have now spread to even more people.
Between July and September, “as shoppers worried about spending too much on groceries, one of the responses was making shorter trips and buying fewer items on each trip to the grocery store,” said Rajeev Sharma, founder and CEO of VideoMining, which measures and tracks in-store shopper behaviour.
“Quick” trips, with fewer than five items in their carts, increased to 51% of all grocery store runs in the summer and early fall, up from 50% in the spring and early summer. Meanwhile, “Stock Up” trips, in which customers brought more than 15 items, remained at 15% of all store visits, he said.
The cuts will affect children.
When parents are strapped for cash, they usually cut back on themselves first, then their children. However, for some families, the children have already been disconnected.
Toy and game “sentiment remains terrible” this holiday season, with year-over-year receipts showing decreases in units sold, trips to the store, and average spend per trip in October and November, according to Jefferies analysts.
It’s not just toys and games either. Last month, Gap CEO Bobby Martin stated that sales of baby and children’s clothing were down at both Old Navy and Gap.
“Old Navy customers are still willing to buy. “However, it continues to see softness in spending and shopping frequency from its lowest-income consumers,” said Bobby Martin, interim CEO of Gap.
This is an indication that the retailer is “suffering from an erosion in spending among the family demographic, which has pulled back on purchases due to growing financial constraints,” according to Neil Saunders, managing director of analytics and consulting firm GlobalData.
People are still buying TVs at Costco, with unit sales up from a year ago. They are, however, opting for smaller ones, “highlighting yet another example of consumer weakness,” according to Christopher Horvers, a retail analyst at JPMorgan.
The most effective way to save money is to avoid spending any.
While people are spending more time comparing prices this year, there has been an increase in people leaving without purchasing anything.
Even shoppers who normally enter a store and buy their favourite grocery item are taking more time to look for a lower-priced alternative, according to Sharma of VideoMining. Nonetheless, 45% of shoppers who browsed did not purchase.
“High prices are certainly a major factor that drives the “shopper leakage” or “walk away” rate,” he said. “In the third quarter, the average per unit price of a grocery product was $4.21, the highest on record.”
According to Sharma, shoppers bought 10% fewer vitamins last quarter compared to the previous year, despite spending 5% more time looking at them.
According to Meagan Schoenberger, an economist with the accounting firm KPMG, Americans will likely cut back on spending even more aggressively next year.
But where exactly?
Perhaps candy, which saw a 7% increase in buyers who spent less time shopping for it, according to Sharma.