Rising prices have become a staple in today’s economy, leading many consumers to adjust their purchasing habits. Inflationary pressures across the economy have eroded consumer purchasing power and directly affected demand: 62% have cut down on nonessential spending due to increases in retail prices. More importantly, consumers are leaning towards cheaper retailers, lower-quality products and even secondhand stores.
PYMNTS Intelligence has studied United States consumers’ sentiments about the economy and inflation for more than a year. The shift to cheaper, lower-quality or secondhand products underlines consumers’ reaction to inflation.
This report is the 18th installment in the “Consumer Inflation Sentiment” series, exploring consumers’ opinions about the impact of inflation on their spending behaviors. For “Persistent Inflation Rekindles Consumer’s Interest in Secondhand Stores,” we surveyed 2,309 U.S. consumers between Dec. 5, 2023, and Dec. 19, 2023, to better understand their reactions to continuous price hikes.
Key Findings
Consumers continue to measure inflation by how much things cost and not whether the inflation rate overall is decreasing.
Inflation fluctuated between 3% and 3.7% throughout the second half of the year, standing at 3.1% year over year as of November 2023. Inflation data suggests prices are starting to “settle in” after a notable rise in 2021 and the first half of 2022. The number of items in the Consumer Price Index that show minimal increases has gradually returned to pre-pandemic levels after two years. Before this, prices rose to levels not seen in 40 years. For example, services prices, which account for 60% of the CPI, are now evenly matched with the overall index in terms of cumulative increases since 2020, signaling a future slowdown of overall CPI growth.
On the demand side, the average consumer continues to say prices will take 19 months to return to their “normal” dynamics. Nevertheless, the length of time that consumers expect it will take to return to price normality is down for the second consecutive month, but only marginally. This is the first time two consecutive cuts in the expected date have occurred in our 18-month series.
This apparent disconnect between the recent inflation dynamic and consumers’ expectations hints that their perception of “normal” appears to be correlated with the affordability of prices rather than the Bureau of Labor Statistics data. Consumers are more sensitive to how their income has moved in relation to inflation — most feel that wages have not kept up. Just 18% of wage earners in December 2023 said their wages at least kept pace with inflation. The share of consumers saying this did not surpass 20% throughout 2023. Meanwhile, the current purchasing power of the dollar is equal to 84 cents in January 2020.
Even if prices become more affordable, consumers will likely be more conservative with their spending heading into 2024.
Although the monthly inflation rate stayed below 4% between June 2023 and November 2023, consumers reduced spending since wages have not kept pace. Although consumer demand remains, it has shifted. Survey data shows that 60% of retail consumers have reduced nonessential spending as of December 2023. This share is down just 5 percentage points from one year ago, when the inflation rate was 6.5%, showing that consumers are still conservative. The share of consumers who say they have moved to cheaper retailers, 58%, and those who have opted to reduce their quality requirements, 33%, remain substantially unchanged from previous months despite relatively positive data on inflation rates.
Secondhand stores are having a moment, as consumers trade “what’s new” for what looks good and is affordable, especially more affluent buyers.
The demand for cheaper items in response to higher prices has led to a shift in consumer sentiment regarding secondhand stores. Survey data shows that 43% of consumers purchased a secondhand product in 2023, with high-income consumers the most likely to make such purchases. In addition, 19% of consumers said they have made more purchases from secondhand stores. This share rises among younger and more affluent consumers. High-income consumers are less likely to use secondhand stores for clothing. They are more likely to use them for furnishings and electronics and to have used a variety of secondhand channels, particularly social media and secondhand marketplaces. On the other hand, the average secondhand apparel buyer tends to be older and have a lower income.
Diving deep into the data, we see an interesting story of how consumers deal with specific purchases. The sale of durable goods shows a strong example. Retail sales reached their highest point in real terms in 2021, suggesting that, at least for items that are considered durable, consumers made purchases that are not likely to be repeated for a while. Moreover, data suggests that consumers are unlikely to make purchases of durable goods because these have become more expensive, opening the door for secondhand stores. However, one-fifth of consumers said the top reason they reduced spending on furniture and appliances in 2023 was because they had already purchased these items in the past.
Motivated by saving 30% on average, shoppers rely on secondhand stores as heavily as those with brand-new goods.
This new “normal” of buying from secondhand stores is a response to current economic conditions and is a direct result of unaffordable prices. This seems to suggest that consumers, in general, cut back spending on new products in 2021 and 2022, when prices increased substantially. Instead, they opted to tap secondhand retailers and are now repeat buyers in this market.
As a whole, secondhand consumers have purchased more used goods than new ones, indicating they are repeat customers in the secondhand market. Among consumers using secondhand channels, 59% of all clothing purchases occurred at these stores in 2023, as did 64% of electronic purchases. Consumers report saving between 30% and 35% by shopping at secondhand stores, which may be a significant driver behind this change in spending.
Conclusion
Inflation continues to negatively impact consumers’ ability to maintain their purchasing power. Consumers demonstrate their resilience in this economy by making shifts that preserve a standard of living. Recent data suggests consumers forego quality in their purchases and opt for cheaper goods. More consumers choose secondhand stores that low-income and credit-marginalized consumers historically used the most. Conversely, we see affluent consumers turning to secondhand stores for electronics and furnishings. This shift could reflect a new trend for high-end products.
This new paradigm presents a shift in demand that is paramount when discussing the effects of inflation on consumer purchasing behavior. Inflation has pushed consumers to be more conservative, and they do not appear to be changing course, even if price increases return to 2021 levels. When asked about expectations for purchases this year, consumers mostly noted that they would spend at 2023 levels, solidifying the view that inflationary pressures have established a “new normal” in the economy.
Methodology
“Persistent Inflation Rekindles Consumer’s Interest in Secondhand Stores,” produced independently by PYMNTS Intelligence, analyzes inflation in retail shopping. We surveyed 2,309 U.S. consumers between Dec. 5 and Dec. 19 to better understand consumer reactions to higher retail prices. Our sample was balanced to match the U.S. adult population in a set of key variables. Respondents’ average age was 48.1 years old, 51% identified as female and 38% annually earned more than $100,000.
Read the December “Consumer Inflation Sentiment: Tipping Over: Consumers Reducing Spending and Avoiding Tips” and other previous editions of the series for more.
