Consumers pay “top dollar for wants, not needs” – Sourcing Journal

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Inflation has been the recurring macroeconomic theme of 2022. Yet despite concerns that the economy is watching the barrel of a possible recession, an examination of today’s consumer spending habits shows that the people are still buying, at least for now.

At CommerceNext 2022 on Tuesday, Forrester Vice President and Principal Analyst Sucharita Kodali pointed to US Census Bureau data indicating consumers are spending at record highs on discretionary goods. Excluding gas stations and auto sales, total retail spending topped $2.29 trillion in the first five months of 2022, up 9.8% from a year earlier.

But perhaps the most critical signal to financial consumer health, she said, is a buyer’s willingness to spend on gas even if it’s over $5 a gallon on average. While gas spending rose 41.2% year-over-year to $64.8 billion in April 2022, according to US Census Bureau data, Kodali said drivers were also consuming 40 % more gasoline than the previous year.

According to mobility data from Google, drivers use 10% less gas to get to work and 1% less gas when going to grocery stores and pharmacies. However, they use 43% more gas to get to places like parks, Kodali cited.

“We have a situation where a lot of people are using gas and some of this new wealth to participate in leisure activities, and that’s a good thing,” Kodali said. “If we’re in a period where people are paying top dollar for their wants and not their needs, we may be better off than we think.”

Consumers may soon see some relief on the gas front, even though they have been willing to pay for the higher prices.

Early Wednesday, President Joe Biden called for a three-month suspension of the federal gasoline tax through September as gasoline prices soared to average $5 a gallon nationwide. Currently, the federal government charges a tax of 18 cents per gallon on gasoline and a tax of 24 cents per gallon on diesel.

The president is also calling on state and local governments to provide additional relief to consumers. The governors of Connecticut and New York have already temporarily suspended their gasoline taxes, while the governors of Illinois and Colorado have delayed planned gasoline tax and fee increases.

Expect more retail bankruptcies

Meanwhile, Kodali noted that even with the significant shifts in consumer spending habits throughout the Covid-19 pandemic, retail is still grappling with many of its longstanding issues.

The United States is still very saturated, she said, as e-commerce continues to grow and gain market share, delivery remains an expensive issue, customer acquisition is difficult and becomes more more expensive day by day. Being a retailer is tough, she says.

“We’re definitely going to see more bankruptcies this year,” Kodali said, noting that large retail bankruptcies fell from 37 in 2020 to 15 in 2021.

“If anything, the last year has been kind of a pass where there were a lot of companies that got a second life, when they probably shouldn’t have,” Kodali said. “In an era of higher interest rates, anyone in debt is likely to be much more challenged, but we’re likely to see a jolt at more retailers than we did last year. Many of them will likely be in industries like fashion.

Kodali highlighted some of the delivery companies that have yet to make a profit and have seen their business slow since the height of the pandemic. Instacart has reduced its valuation by nearly 40% to reflect current market conditions. Data from Bloomberg Second Measure estimated that Instacart sales were down 4% year over year in the first quarter of 2022.

The market values ​​of other delivery startups like Gopuff, Getir and Gorillas have also fallen, with all three laying off hundreds of employees. Another grocery delivery giant, Jokr, left the United States earlier in June. And logistics players are cutting jobs left and right.

“We thought the pandemic was going to make last mile delivery last forever. And that, in fact, did not stay,” Kodali said.

3 ESG questions traders need to ask themselves

Kodali also spoke about the growing need for retail to address causes related to ESG and sustainability. She cited data from McKinsey & Co. indicating that 4% of all carbon emissions come from the fashion industry, figures she called “the most conservative estimate”.

The retailer must ask itself three existential questions to answer over the next five years: What are you doing to help your business think about new products and services that benefit from environmental protection? What can you do on an individual level? And finally, what can you do to push governments and investors to act responsibly?

“The first thing I would say is to defend some of the laws that already exist and are already being proposed,” Kodali said, citing the New York Fashion Act. “Learn about it, educate your CEOs and your C-level team, even if they’re not in your state, to potentially introduce sustainability laws and extended producer responsibility laws. These are all things that environmental advocacy groups absolutely advocate from an ESG perspective. »

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