Watching the pennies

What impact is the global downturn having on consumer spending?

Consumers are unsurprisingly concerned about the macroeconomic climate and have been forced to rethink, and potentially reorient, their spending behaviours. According to a PwC global survey, 50% of consumers are either very or extremely concerned about their personal financial situation, with a majority of this group altering their behaviour when it comes to non-essential spending.

This sentiment is true across all core retail categories. Many reported that they were now likely to switch to cheaper brands for a desired product or even go without purchasing the item at all. Other ways in which consumers planned to save money were through buying products when they went on offer or through promotions, seeking retailers offering better value, utilising comparison websites to discover cheaper alternatives, or buying retailers’ ‘own brand’ products to make savings.

The share of those who were not concerned or were not planning on acting against their spending increases were the older generations. This may relate to the higher proportions of affluence within older age groups, such as Baby Boomers. Gen Z through to Gen X are typically the focus for brands – and these groups are the most anxious. Current supply chain issues are also causing disruption specific to the in-store experience, as many consumers say they are affected by having desired products out of stock or by the inconvenience of longer queues.

So, what does this mean?
Squeezed budgets mean that consumers intend to reduce spending on non-essential sectors, particularly on luxury items, travel and fashion. However, 26% of the PwC survey respondents said that they intend to spend the same amount on luxury or designer products over the next six months, whereas another 21% intend to increase their spend. It is likely that these groups will take a closer look at the price tag than they had previously done, while the remainder might bypass these products altogether.

Naturally, value retailers will see a rise in revenue (as observed in the UK where total value stores saw a 1.6% increase in spend between January and February). Other non-essential retailers can expect to see reduced footfall for their bricks-and-mortar stores and less clicks online. Opinium's Most Connected Brands index saw the likes of the budget giant, Walmart, in the US rise 19 places from 2022. The UK saw budget brands such as Aldo, TK Maxx and Primark rise as brands like H&M and ASOS fell.

However, consumers are still keen to return to their pre-pandemic spending habits, albeit currently at a more conservative pace. Many of the survey respondents reported that they still have a hunger for future spending. Additionally, recent troubles have not damped consumers' appetite for sustainability, with an overwhelming majority still willing to pay more for sustainable products, whether that means the products are produced locally, made from sustainable materials, or provided by an ethically-sound company.

Though the macroeconomic climate is alarming, this gives retailers and brands the opportunity to refine their supply chain resilience, improve their sustainability initiatives, and fortify customer loyalty through personalised relationship building and loyalty rewards. Inflation forecasts predict that inflation has already hit its peak and will begin to lessen as we get further into the year. Spend will appropriately increase as conditions improve, with the potential for another revenge-spending wave to ensue.

Alexander Foy