Retail brands are gearing up for another blockbuster holiday shopping season, but consumers burned by the highest inflation in a generation may have other ideas. Industry groups are predicting another record year for retail sales, with the National Retail Federation forecasting a 6 to 8 percent increase on the $890 billion consumers spent online and in stores in November and December 2021. But Amazon founder and chairman Jeff Bezos seems to be anticipating a much less festive holiday for companies. This month, Amazon said it is laying off 10,000 workers, one of several large companies to announce job cuts recently. Bezos even warned consumers to put off big purchases like cars, televisions and home appliances to save in the event of a recession in 2023.
The results of our new survey suggest that consumers already seem to be taking Bezos’s advice, as a combination of skyrocketing consumer prices, rising borrowing costs and rising odds of a recession weigh on their wallets. We conducted a survey in mid-November, about a week before Black Friday, the historic start of the holiday shopping season, and asked more than 500 consumers a series of questions about their spending plans, concerns, and priorities during the season. Christmas this year. Participants were evenly divided between men and women, and nearly two-thirds had a household income of $70,000 or less.
Overall, the most surprising finding from our research is that consumers report consumption behaviors that they typically exhibit during an economic downturn, similar to those observed in 2009 by consulting firm McKinsey during the Great Recession. One point from the data stands out: An overwhelming 62 percent said they were concerned about their job security, while nearly 35 percent indicated they were “very” or “extremely” concerned about their financial situation.
Here are three behaviors we found in our survey that suggest consumers are behaving as if the US economy is already in a recession…
1. Spend less
Not surprisingly, cutting spending is the first thing consumers do during the economic crisis. A study conducted by McKinsey in early 2009 found that 90 percent of American households cut spending due to the Great Recession, and 33 percent of consumers indicated significant cutbacks. Similarly, respondents to our survey said they plan to spend, on average, about $700 this holiday season, substantially less than the roughly $880 consumers have spent during each of the past three seasons, including early in the pandemic. in 2020. About a third of our sample intended to spend “a little” or “a lot” less than in 2021, while 35 percent said they would spend “about the same,” which from the perspective of a retailer means spending less because last year’s dollars don’t go as far today. The rest said they planned to spend a little or a lot more.
Inflation is one of the main reasons consumers say they are spending less. Nearly 80 percent of those surveyed said they are moderately, very, or extremely concerned about rising prices, and 87 percent said those concerns would affect their holiday spending behavior, such as buying gifts for fewer people or buying less expensive items. Still, some of our respondents said they planned to buy used products, rather than buy new items. The used market has exploded in recent years and many buyers see this option as a way to combat inflationary pressures.
2. Planning ahead
Another thing consumers do when they sense a troubled economy is to plan their purchases more carefully and maintain self-control over spending. Common strategies include spending more time searching for the best deals, adhering to strict shopping lists, prioritizing necessities, and shopping earlier to spread your expenses, all of which were mentioned by our survey respondents.
We may already be seeing signs of the latter strategy. October retail sales increased 1.3 percent from the prior month and 8.3 percent from October 2021, which may reflect anticipated holiday shopping by consumers. If that’s the case, these early purchases may result in a drop in sales in December. Additionally, buying early, aided by the many deep discounts offered well before Black Friday, allows consumers to better control their buying behavior and reduces the risk of impulse purchases. The reduction in impulse purchases is a strong indicator that consumers are shopping as if the economy is in a recession.
In our survey, we found that more than 50 percent of participants said they would use their savings to cover the cost of holiday expenses, with many emphasizing that they would pay in cash. The use of cash as the main form of payment is the main tool that consumers have to control spending. Only 15 percent of our respondents said they would use buy-now-pay-later options, which to us is another sign that consumers prefer cash over forms of credit that create new debt.
3. Price hypersensitivity
During economic downturns, consumers become hypersensitive to prices, which trump most other considerations in consumers’ minds. A staggering 90 percent of our survey respondents confirmed that price is their top consideration when shopping this year. Other elements of price sensitivity are free shipping, product value, and discount level, if any.
Consumers’ singular focus on price provides retailers with a wide range of potential responses, including promoting private labels and private labels that are perceived to have higher value for money. In fact, according to the 2009 McKinsey report, one of the biggest changes in consumer behavior during and after the 2008 recession was the shift in preference from high-priced premium brands to value brands that tend to have higher prices. lower but still decent quality. During an economic downturn, consumers typically stop buying brands they aren’t strongly connected to or loyal to. Consumers in our survey said that shopping for brands will be one of the least important influences on their purchases this season.
As economists debate whether a recession is coming, or even if the US is already in one, our data suggests that consumers are beginning to behave as if one is already in the offing. That risks becoming a self-fulfilling prophecy as consumers tighten their belts.
Ayala A. Ruvio is an Assistant Professor of Marketing at Michigan State University.
forest morgeson is an Assistant Professor of Marketing at Michigan State University. (This article was originally published by The Conversation.)