Inflation has been the recurring macroeconomic theme of 2022. Yet despite concerns that the economy is staring down the barrel of a potential recession, examining the spending habits of today’s consumer shows that people are still buying, at least for now.
At CommerceNext 2022 on Tuesday, Forrester vice president and principal analyst Sucharita Kodali highlighted U.S. Census Bureau data indicating that consumers are spending at record-high levels on discretionary goods. Excluding gas stations and auto sales, total retail spending has topped $2.29 trillion in the first five months of 2022, up 9.8 percent from the year before.
But perhaps the most critical signal for financial consumer health, she said, is the buyer’s willingness to spend on gas even as it blows past $5 per gallon on average. While gas spending increased 41.2 percent year over year to $64.8 billion in April 2022, according to data from the U.S. Census Bureau, Kodali said that drivers are also consuming 40 percent more gas than the year prior.
According to Google mobility data, drivers are consuming 10 percent less gas to travel to the workplace and 1 percent less gas when going to grocery stores and pharmacies. However, they are using 43 percent more gas to go to places like parks, Kodali cited.
“We have a situation where a lot of people are using gas and some of this newfound wealth to take part in leisure activities, and that is a great thing,” Kodali said. “If we are in a time period where people are paying top dollar for wants and not needs, maybe we’re better off than we think.”
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Consumers could soon see some relief on the gas front even if they’ve been willing to pony up for the higher prices.
Early Wednesday, President Joe Biden called for a three-month suspension of the federal gas tax until September, as soaring gas prices have reached $5 per gallon on average nationwide. Currently, the federal government charges an 18-cent tax per gallon of gasoline and a 24-cent tax per gallon of diesel.
The president also is calling on state and local governments to provide additional consumer relief. The governors of Connecticut and New York have already temporarily suspended their gas taxes, while governors in Illinois and Colorado delayed planned gas tax and fee increases.
Expect more retail bankruptcies
Meanwhile, Kodali noted that even with the significant changes in consumer spending habits throughout the Covid-19 pandemic, retail still faces many of its long-running issues.
The U.S. is still very much overstored, she said, while e-commerce continues to grow and take market share, delivery remains an expensive problem, customer acquisition is difficult and getting more costly by the day. Being a retailer is hard, she said.
“We’re definitely going to see more bankruptcies this year,” Kodali said, noting that major retail bankruptcies dipped from 37 in 2020 to 15 in 2021.
“If anything, the past year was kind of a free pass where there were a lot of companies that got a second lease on life, when they probably shouldn’t have,” Kodali said. “In an era of higher interest rates, anybody who’s in debt probably is going to be much more challenged, but we will likely see a shakeout in more retailers than we did last year. A lot of them are likely going to be in sectors like fashion.”
Kodali pointed to some of the delivery companies that have yet to make a profit and have seen business decelerate since the pandemic’s peak. Instacart cut its valuation by nearly 40 percent to reflect the current market conditions. Data from Bloomberg Second Measure estimated that Instacart’s sales declined 4 percent year over year during the 2022 first quarter.
The market values of other delivery startups like Gopuff, Getir and Gorillas have similarly tanked, with all three laying off hundreds of employees. Another grocery delivery giant, Jokr, exited the U.S. earlier in June. And logistics players are shedding jobs left and right.
“We thought that the pandemic was going to make last-mile delivery last forever. And that, in fact, did not stay,” Kodali said.
3 ESG questions retailers must ask
Kodali also touched on retail’s growing need to cater to ESG and sustainability-related causes. She cited McKinsey & Co. data indicating that 4 percent of all of carbon emissions come from the fashion industry—numbers which she called among “the most conservative estimates.”
Retailer should consider three existential questions they need to answer within the next five years: What are you doing to help your business think about new products and services that take advantage of helping the environment? 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 advocate for some of the laws that are out there that are already proposed,” Kodali said, citing the New York Fashion Act. “Inform yourself 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 acts. These are all things that environmental support groups are absolutely advocating from an ESG standpoint.”