Consumer Spending Is Shifting — Here’s How to Adapt
Economists and accountants might be undecided about whether we're in a slowdown, a temporary downturn or a full-blown recession, but consumers are sure of one thing: They're ready to see the world again. After two-plus years of being grounded during the pandemic, consumers are voting with their credit cards and ready to spend. On certain things, that is.
American Express reported earnings that show consumers are sparing no expense on travel and entertainment this summer, reflecting a sustained shift in spending as people get more comfortable going out. AmEx customers spent 84 percent more on experiences in the second quarter than they did a year ago, and that included a 148 percent increase in spending on airlines and 90 percent on lodging. MasterCard reported a similar jump and also saw significant upticks in some retail sales too.
But while consumers are ready to spend, the rules have changed. The last few years have been a giant social science experiment on the changing habits of consumers. We're starting to understand everything from changing multi-screen and device-driven habits to the intersection of personal, household and business data sets, with people running their professional lives from home. With all these dynamics, the experiences consumers expect have changed in some meaningful and sometimes profound ways.
Online? Offline? Yes! Omnichannel is no longer negotiable.
The last two years have conditioned people to expect all their goods and services to be online or digitally accessible. This requires brands to be omnichannel, regardless of whether their buyers are shopping online or in-store. According to a recent Forrester report, U.S. online retail sales are projected to reach $1.6 trillion by 2027 and the overall retail sector will generate $5.5 trillion by 2027. But offline retail sales will still make up 70 percent of total retail sales by 2027.
Further complicating things, many consumers want to buy online and then pick it up in-store — a type of buying that will reach $100 billion this year and is expected to be greater than $200 billion by 2027 says Forrester. In other words, consumers want it their way, when they want it, and retailers are expected to meet them where they are.
It's all about what makes you feel good.
After more than two years of sheltering in place, it's no surprise that many Americans are eager to spend on things that have been off limits: airplane tickets, hotels, concerts, theater tickets, festivals, restaurants, and anything else that promises a good time. What they're not spending as much on is furniture, appliances, exercise equipment, cars and other items that soared in 2020 and 2021 during the pandemic shutdowns (or as USA Today quipped: Consumers are ditching their Pelotons for paninis). Even spending on items like jewelry and apparel (you have to look good when you step out) is also rising. A silver lining here is that this shift away from spending on goods will likely be a stabilizing force on inflation rates, as prices for services are less set than prices for goods, particularly big-ticket items, like vehicles.
Everything can be an experience — including shopping.
Everything feels new again when you haven't done it in a while. With consumer spending shifting toward services with a focus on travel, we have seen brand extensions and innovations meant to appeal to consumer desire for experiences and services, including innovative packaging or dependable delivery that can highlight the experiential aspect of a product or brand. The key is connecting physical goods with the more preferred experience those products are associated with. That applies not only to experiential offerings, but also the act of purchasing those goods and services. Shoppers want to spend their money with businesses that can deliver. Amazon, for example, recently added same day delivery for select brick-and-mortar retailers.
Sustainability matters — now more than ever.
Just two years ago, 58 percent of consumers were willing to spend more for sustainable products or services. This slim majority has grown since then: Today 90 percent of gen X consumers are willing to spend an extra 10 percent or more for sustainable products and baby boomers and gen Z are willing to spend more too. Businesses in the travel sector can support consumer spending interests by boosting sustainability credentials and transparently communicating how their offerings are authentically ethical and green.
According to Expedia Group Media Solution's April 2022 Sustainable Travel Study, 7 in 10 consumers have avoided a destination or transportation option because they felt it was not truly committed to sustainable practices. If you don't address sustainability in your offerings already, there's no time like the present to start.
The pandemic, inflation and rising prices have all caused a profound shift in the way consumers spend. But spend they do, and the good news is that so far the economy — and consumer wallets — have been mostly resilient. And for brands and marketers that want to capitalize on that, meeting consumers with the right experiences will be crucial.
The views and opinions expressed are solely those of the contributor and do not necessarily reflect the official position of the ANA or imply endorsement from the ANA.
Anna Otieno is head of research, strategy and insights at New Engen.