Retail

The categories likely to take a hit as consumer spending slows

“You’ll see people making trade-offs in the products,” explained Jonah Ellin, chief product officer at 1010 data.
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Francis Scialabba

· less than 3 min read

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Prices keep going up and shoppers aren’t down with it. Consumer spending slumped in May, up just 0.2%—the smallest monthly increase this year—per Commerce Department data released last week.

While the dip may seem marginal, unyielding inflation and a possible looming recession are fueling concerns around what will happen if costs keep rising and consumers keep spending less.

“When the prices initially go up and inflation hits, people don’t know how long it’s going to be around for…They haven’t adjusted their behaviors,” Jonah Ellin, chief product officer at 1010 data, told Retail Brew. “But the second time it happens, you start to worry. At which point, you start looking at, ‘How do I change my behavior? How do I change my habits to not end up with the same results?’”

Hard hitting: The first retail categories affected in those cases are “recurring” ones, or everyday essentials, Ellin said. “They’re going to try to penny-pinch on the needs, so that they can afford the things that they want,” he explained.

  • Ultimately, shoppers will start looking for lower-priced replacements and make trade-offs, Ellin added, whether that be switching to private-label brands or “downgrading from the top tiers to the mid tiers, and from the mid tiers to the low.”

What consumers are likely willing to spend on, Ellin noted, are experiences like traveling and sticking to self-care routines (after spending so much time at home). 

  • Premium retailers too, should be insulated since the category is a “step below where people start really looking at it and trying to economize,” he said.

Zoom out: While rising costs seem to be out of everyone’s control, there are some things retailers can do to brace for impact—starting with understanding customer preferences, Ellin said.

“There are the products that you can raise prices on, where there’s elasticity in the market, and there’s products where if you change the price, you’re going to seriously impact your price perception,” he said. “Retailers need to be very focused on, ‘What is the overall basket price, and how does it feel to the consumer at the shelf in terms of the way they perceive your pricing?’ Those who really focus on that price perception and put the customer first will come out ahead in this game.”—JS

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