Did you read the one about the coming retail apocalypse? That consumers are abandoning their carts and tightening the purse strings like never before? Not so, says MasterCard’s Group Head of Market Insights Sarah Quinlan, who tells MPD CEO Karen Webster what everyone has missed about the latest retail forecasts and why consumers are, in fact, spending, but spending differently than they ever have. All that and MasterCard’s May SpendingPulse.
“It’s not as bad as it sounds”
That’s MasterCard’s SVP and Head of Market Insights Sarah Quinlan’s take on retail spending trends for May.
“I am happy to report consumer spending was up 4.3 percent year over year in May which is a notable acceleration from the 3.4 percent growth [we saw] in April,” Quinlan told MPD CEO Karen Webster in a recent interview.
So why all the darkness reported in the mainstream media? The phrase “retail sales disappoint” became somewhat depressingly common in the headlines of stories written about the Commerce Department retail sales figures statistic released about a month ago.
Quinlan — who is sometimes referred to as the “Duchess of Doom” for her no-nonsense tell-it-like-it-is accounting of consumer spending — was upbeat in countering the “doomsday” forecasts proffered by so many other media outlets.
And why the disparity?
Falling gas prices.
“Gasoline prices are down 29.4 percent year on year and gas represents 12 percent of consumer spending,” Quinlan noted. “So when you factor in gas prices times the volume that is purchased at the pump, it’s not surprising to see the ‘drag on spending headline.’ But the actual spending on the part of consumers is up and consistent.”
Aha!
So what are consumers buying? Here are three trends which Quinlan credits for driving the consumer spending spree.
Frequent readers of PYMNTS’ Alternative Financial Services Tracker know that it’s not always easy to be a small retailer – since it can be hard to get traditional FIs to feel their lending love.
Luckily, according to Quinlan, the good news is that it seems shoppers are coming around to loving the little guys, and showing their enthusiasm with their spending.
“Small business spending is stronger than we have ever seen it,” Quinlan told Webster. “In April, we saw spending in small business up 8.1 percent, almost double the overall total retail growth rate – and that tells us the consumer is wanting to shop small.”
The exception to that trend it was in jewelry, Quinlan noted. Though sales figures for jewelry recovered in May after falling off some in April, that renewed enthusiasm seems more tilted toward the big chains than the small independents.
“It was slightly negative in April, but again positive in May and doing well,” Quinlan said. “We did see an uptick online. What we have seen is a bit of a shift away from the independent jewelers as it seems they are dealing with some loss of consumer real estate to the bigger players in the space.”
For the small business segment, it seems a strong digital presence is an important factor with influence that is still growing.
“There is nothing more important than reaching the consumer through multiple channels from a retail sales perspective,” Quinlan added.
What consumers are buying is also changing fundamentally.
Grocery sales were slightly increased last month, but have been largely flat for the last year. But that’s not because consumers are eating less, they are just eating differently – they’re eating out a lot more.
“The second leading [spend] category for the fourth consecutive month is restaurants – we are dining out more than ever. That really reflects the old joke about economic recovery ‘we like our family and friends again’ – but we are also seeing increased travel with spending on airlines and hotel as well,” Quinlan told Webster.
Experiences, a consistent theme now for the last year or more, seems bigger and more pronounced than ever. “People want the experience, they want the memory of dining out, they want the memory of going on that trip. And if consumers are traveling, they’re not at home cooking – they’re eating out,” Quinlan remarked.
And that’s a pretty big change – and not just from the recession period that immediately preceded this gradual retail recovery when consumers simply weren’t spending on anything. This, says Quinlan, is much more of a change in interests by the general consumer base.
“This is a real shift and I think it is fundamental and secular,” Quinlan said. “I think people are looking for experiences they can hold with them, because a memory lasts forever. We haven’t seen that same rebound in other areas. Apparel has been stronger this month and better than what it has been in the past few years, but nowhere near pre-recession levels.”
And while consumers who are more interested in buying experiences than things are a source of great news for restaurateurs, airlines, hoteliers and amusement parks, that could imply that it might be somewhat rough for those not in the business of selling an experience.
Not really, says Quinlan, since actually all merchants are selling an experience – even if they don’t know it.
“An experience is always happening all around a consumer,” she said. “For an example, my millennial daughter loves to go shopping with me, and it’s the experience of being together and looking at clothes that is part of the appeal.”
Moreover, she said, the consumer relationship to shopping is changing – and increasingly the customer views shopping as part of an appropriate leisure line-up while vacationing.
“There is a lot of destination-spending that retailers can tie their way into hotels and airlines. People are working all the time and increasingly they are moving to shopping while they are on vacation and there is an opportunity to capture spending there.”
The secret, Quinlan says, is what it always is: creativity and offering the customer more from the shopping experience.
Because the data doesn’t show that consumers aren’t out there waiting to drop dollars no matter what the headlines say. What the trends actually indicate is that the customers are out there.
They are just waiting to be wooed – and wowed.
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