With so many crises happening simultaneously, it’s not surprising that people are asking, “What’s next.” Although consumers anticipated prices would fall as swiftly as they climbed, that has not happened. After successive months of surging prices at the gas pump, grocery store, and retailers, rising inflation pushes many shoppers to the brink of financial instability.
The erosion of income and assets caused by rampant inflation has forced people to change their spending habits and has altered their typical buying behavior. Whereas people were splurging on high-end merchandise, they are now cautious about making random purchases—especially at retail stores. Consumers and retailers anticipate the long-term impact of these tumultuous economic times and are hunkering down to withstand the hit to their wallets and profits.
According to a PYMTS Survey, Consumer Inflation Sentiment: July 2022—Consumers Pull Back and Prepare for the Long Haul, “Perhaps the greatest danger to the economy is the wealth effect, a phenomenon in which consumers who have lost assets due to inflation are less likely to spend, creating a negative cycle. Our data showed that consumers who have broken the paycheck-to-paycheck cycle are already pulling back spending, especially retail spending.”
- 653—Average number of days consumers think will pass before inflation normalizes
- Sixty-three percent of consumers say they are worried about how to pay for food and basics
- Forty-nine percent of people are using their savings to pay for daily expenses
Similar to the pandemic, it’s hard to predict precisely how long this inflationary cycle will last. However, survey respondents believe it will last for another two years. To prepare, consumers are buying less, making fewer visits to expensive stores, dining at home, and postponing vacations. Fifty-three percent of consumers feel worse off than they were a year ago. People are also reverting to quick fixes such as dipping into savings to help them navigate rising costs. This option is not sustainable since these consumers will eventually deplete their savings.
- Seventy percent of consumers are cutting back to adjust to the new financial reality
- Sixty-two percent are stretched to the limit and cannot absorb more price increases
- 31 percent have cut down on healthcare expenses
Slow-down in buying causes retail purchases to take a hit
while its routinely acknowledged people who earn lower incomes are profoundly impacted by inflation, those making more than $100,000 are also cutting back on expenditures. Survey results indicate that 90 percent of these respondents have changed their buying patterns to adjust to the higher cost of living. The change in the spending habits of affluent consumers is important because it is an indicator of a healthy economy and drives spending at retail.
- Four in five affluent consumers are reducing their spending
- Wallet-tightening from this consumer segment can predict long-term economic
- The average consumer made 2.7 changes to their spending habits
Like consumers, retailers find themselves between a rock and a hard place. To survive, retailers have learned to pivot quickly and manage unforeseen situations during the pandemic and numerous economic downturns. The new reality is that consumers are focusing on buying essentials and postponing those purchases they can put on hold. Storeowners should concentrate on delivering value and competing for a share of consumer dollars.