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Are Consumers Really as Cash-Strapped as Retailers Think?

While everyone’s talking about whether or not economies will slide into a recession, or whether it’s happened already, consumers may not treat a slowdown with the sense of urgency many prognosticators expect.

As many as 77 percent of retail executives believe consumers are somewhat to very concerned about a recession, while only 57 percent feel the same way, according to a study from First Insight and WWD, which is owned by Sourcing Journal parent Penske Media Corporation.

The study said many of the 1,400 U.S. consumer respondents share concerns, but aren’t worrying their life away about the current financial situation. While 18 percent of the 65 senior retail executives surveyed believe shoppers are somewhat or slightly concerned about a recession, 36 percent of consumers share this belief.

Forty-three percent of retailers think consumers are buying less product overall amid today’s economic state, yet only 29 percent of consumers say this is the case. Forty percent of retail executives think consumers are using more coupons, compared to only 24 percent of consumers who are using these discounts.

“Our data clearly indicate that executive decision makers are not in sync with the consumers they serve, most likely due to a lack of information,” First Insight CEO Greg Petro said. “The retail executives’ perspectives demonstrate a risk-averse approach leading to a suboptimal outcome. In this case, I hope they are not getting their ‘head over their skis’ in anticipating a situation which may never transpire.”

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The one place both retailers and consumers agree is that inflation has forced consumers to stay within a budget—at 42 percent apiece.

There were clear disconnects regarding spending categories that are being impacted by inflation.

Fifty-two percent of retailers believe that consumers are reducing their spend on apparel, footwear and accessories because of higher prices. But consumers tell a less dire story, with only 40 percent indicating they’ve pulled back in this area.

The cutbacks across the subcategories generally aren’t as extreme as projected. Only 32 percent say they have pulled back spending on jewelry, despite the 66 percent of executives who believed they would. And while 31 percent of consumers are slowing their casual wear purchases, 45 percent of retail execs expected more cuts.

Merchandise that skews toward the higher end, including handbags and dress shoes, clearly illustrates the divide. Twenty-nine percent of consumer respondents said they dialed back handbag purchases, compared to 57 percent of retailers who said consumers would. Just 25 percent of consumers shied away from dress shoes, an area where 43 percent of executives thought consumers would spend less.  

Eveningwear is similarly disconnected. Forty-five percent of retail executives assume consumers will spend less for formal or more dressy apparel, whereas only 20 percent of consumers cite this category as an area where they’re cutting back.

“The U.S. apparel, footwear, and accessories categories go into the holiday season facing the macro disruptions being seen across the economy,” said James Fallon, editorial director for Fairchild Fashion Media, in a statement. “Although the challenges presented by supply chain issues, inflation and workforce shortages are significant, pricing strategy was cited by 40 percent of retail leaders as the one variable within their control. Given that, a well-developed pricing strategy will make all the difference in retailers’ end-of-year performance.”

What’s more, 40 percent of retail executives believe that consumers are cutting back on home décor and furniture items, when only 22 percent of consumers are spending less on their homes.

Retail executives largely believe that rising prices have changed consumers’ shopping habits to focus more on promotions, sales and discounts. However, the survey paints a different picture. For instance, 58 percent of retail executives think that consumers are shopping more for deals, but this is true for only 40 percent of consumers.

Aside from grocery, retail’s inflation-driven price increases haven’t been as impactful to the daily lives of consumers. The First Insight survey indicated that consumers’ top-three inflation pain points are grocery prices, gasoline prices, and the high cost of dining out.

Retail executives are mostly in step with consumers on this front, believing that the three categories most frustrating for them are high prices at the pump, grocery prices and rent or mortgage payments.

European consumers are more willing to change buying habits

Spending concerns may be more prevalent across the pond, with 61 percent of consumers surveyed across European markets saying they are worried about the personal impact of inflation, according to a report from IRI.

Within the U.K., France, Italy, Germany, Spain and the Netherlands, 71 percent have already made changes to how they buy and use everyday items. Up to 58 percent say they have now cut down on essentials (driving to work or shop, missing meals and reducing heating) with 35 percent dipping into their personal savings and taking out loans to pay bills.

European consumers are choosier about where to shop as they moderate the effects of the crisis. They’ll go to another retailer if their regular brand isn’t available (26 percent), on promotion (34 percent) or if the shop doesn’t have enough deals (41 percent). According to IRI, shoppers are switching to discounters that have expanded their stores into town centers and residential areas with a small but well-priced range of products at lower prices than mass merchants.

“Gone are the days of the one-stop weekly shop, we’re expecting to see an increase in shopping around for must-have products and the consumption of less expensive seasonal goods,” said Ananda Roy, global senior vice president, strategic growth insights, IRI. “There are several difficult decisions for shoppers on the cards, and retailers and brands will do well to take a long and hard look at how they’re going to respond to shopper needs.” 

The five types of sustainability consumers

Understanding consumer spending habits amid a potential recession certainly isn’t the only area where retailers should stay informed.

A report from Bain & Company and the World Wildlife Fund for Nature (WWF) found that approximately 15 percent of global fashion consumers are already highly concerned about sustainability and consistently make purchasing decisions to lower their impact.

But this is just the ground floor—the report concludes that this percentage is likely to increase sharply, to more than 50 percent of fashion consumers as more shoppers gravitate toward sustainable practices.

“Sustainable shopping is an inevitable change. Concern for sustainability is strong among younger generations—and growing overall,” said Claudia D’Arpizio, a Bain & Company senior partner in Milan and the firm’s global head of fashion and luxury. “Hence, fashion brands need to embrace the sustainability conversation and make sustainable purchasing easier for all consumers. Brands that proactively design sustainability into their strategy and operations will cement their relevance and capture a windfall of unmet demand, now and into the future. In fact, everyone will benefit from a commitment to sustainability from the fashion industry.”

Across nearly 5,900 fashion consumers across six countries (U.S., U.K., China, France, Germany, Italy and Japan), Bain and WWF identified five personas of global fashion consumers with well-defined socio-demographic profiles and behaviors.

These personas include: sustainability champions, idealists, good citizens, shoppers and indifferent consumers.

“Sustainability champions,” as their name states, are highly concerned about the environment and regularly buy sustainable apparel. Representing 15 percent of consumers, their intentions and actions are often aligned. These consumers are willing to pay a significant premium price (84 percent) to access sustainable products.

“Idealists,” 10 percent of the consumers studied, mainly belong to the millennial generation. The report says that while they show a high level of concern for the environment, they often don’t know how to act on it and hardly ever purchase sustainable fashion goods.

Another 18 percent of consumers are “good citizens,” mainly consisting of millennials and Gen Z consumers. They usually gather information from in-store displays, social media and brand websites on the product, with 64 percent saying they would pay a premium price for sustainable products.

Gen X and older consumers largely comprise the “opportunity shoppers” bracket. Representing 22 percent of consumers, they usually acquire their information from in-store displays and word of mouth. They are sometimes willing to engage in sustainable behavior, with 55 percent willing to pay more for sustainable merchandise.

Unfortunately, the largest segment of the five groups is still the “indifferents,” who are the 35 percent of consumers not concerned about sustainability and seldom factor it into their purchasing decisions.

Despite being among the top six purchase drivers for most global fashion customers, sustainability is an explicitly lower priority than other, more tangible factors closely related to sustainability, such as product quality and durability. Price and product fit were the second- and third-most important factors, according to the report.

“Fashion brands are on the cusp of a great opportunity but are often overwhelmed by complexity, especially along lengthy supply chains,” said Federica Levato, senior partner at Milan’s office and EMEA leader of fashion and luxury at Bain. “Brands have a social role in this epoch-making change: they are called to address the information gap, engage consumers on product durability and impact; and make sustainable purchases more convenient and appealing. This will make them successful, while help shifting consumers toward more sustainable consumption.”