It’s a rough world out there right now, to put it lightly. And the retail industry is seeing the effects. Inflation is at the highest level in nearly four decades, with average prices rising by nearly 7%, although many individual categories, such as food and cars, have risen by much more. In the meantime, there is a juxtaposition in retail where steady and strong consumer demand for goods has run headlong into supply chain logjams. Rising inflation has also taken a toll on consumer confidence levels, which have dipped to the lowest levels in decades.
In the meantime, Americans’ credit card debt rose during the last quarter by $17 billion, a side effect of the fact that over half — 57% — of U.S. consumers live paycheck-to-paycheck and borrow funds to make ends meet.
Taken together, the sum of the economic parts is one of mounting pressure that is starting to emerge in the form of rising delinquency rates, deferred spending or other cutbacks or curtailment.
“Of course, much depends on the state of the pandemic. Should the omicron variant boost infection rates in a sustained trend, consumer sentiment will suffer,” said PYMNTS.
The Gift That Keeps Giving
Against this backdrop, retailers facing their own supply chain and inflation pressures have passed the increasing cost of doing business onto consumers and in the meantime, individuals and families tend to be scaling back a bit regarding how much they will spend this year.
To wit, the latest retail sales data for November — which included Black Friday and an earlier-than-usual run-up to it — which rose an anemic 0.3% for the month, an economic stall that was felt by department stores and electronics and appliance dealers, in particular.
“The Grinch is creeping into the room — in the form of inflation — threatening to upend the holiday spending that so many retailers have been banking on,” PYMNTS reported last week regarding the intersection of inflation with holiday shopping.
Perhaps this is why consumers — even those who are financially stable — are leaning more toward buy now, pay later (BNPL) financing models when checking out, versus taking on additional open-ended debt, a reality clearly reflected in the 230% spike in BNPL usage over the past year.
The question remains: What are consumers buying in terms of gifts for their friends, loved ones, colleagues and beyond this holiday season?
One answer is gift cards; this holiday season may arguably become “The Year of the Gift Card,” as PYMNTS reported last month. Gift cards are simple, they remove guessing games, and if purchased online, they’re seamless and touchless. And with supply chain snafus resulting in more consumers finding empty shelves at places like the grocery store and beyond, deferring purchasing until shelves restock and then using a gift card can make sense.
Up to 41% of consumers plan to do so this holiday season, with the average consumer now buying a total of 15 pre-paid gift cards over the total course of 2021. The latter number represents a 50% increase compared to 2020 and a 200% increase compared to 2019.
The way consumers are buying gift cards is a bit more intimate, with some companies catering to this with personalized “experiential” gift card bundles, so shoppers can combine gift cards how they choose. Or, allowing consumers to buy gift cards effortlessly via QR codes. Or allowing customers to buy crypto for someone via gift card.
Going back to the concept of inflation, one key point is that because inflation is rising, so are gift card prices. To what extent this impacts future gift card purchases remains to be seen.
Amazon, Walmart and Target Dominate Consumer Spending Habits
When you look at some findings surrounding this year’s Black Friday sales, consumers seemed to not be in a rush to snag deals. According to PYMNTS data, most consumers — 61 % — said they didn’t wake up early that day to snag items for fear they’d be sold out. Most — over 77% — baby boomers said they felt no need to run out and buy something. About half of Generation Z consumers said they also didn’t wake up on Black Friday to score deals early.
Regarding consumer spending habits this holiday so far, 31% of Black Friday shoppers who purchased toys, hobby items and musical instruments did so in-store. Most Black Friday Walmart shoppers — 59% — went inside a physical store. Most Black Friday shoppers in general — 66% — made online purchases. Amazon and Walmart’s websites were the most popular places to shop for Black Friday. Consumers made 71% of their Black Friday purchases on Amazon.com and 41% at Walmart.com.
“The battle between Amazon and Walmart for control of consumers’ retail spend is neck-and-neck, with the eCommerce giant and the Arkansas box store chain’s each holding about a 9% share of total U.S. retail sales,” PYMNTS 2020 data showed.
Given this competitive and constrained environment, retailers need to carefully think about how they can best serve consumers looking to make purchases amid a struggling economy. It may seem overly simple, but easy, fast and cheap are three words that will dominate consumer shopping this holiday season — and beyond.
It’s been said that if you’re lucky, you can only get two of the three as a consumer, meaning any merchant that can deliver on all three fronts is set to not only win the sale and the day, but wil keep consumers coming back for more if challenging times persist.
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